Yes, it is unlikely it would happen this way, unless of course, the buyer was paying cash, perhaps. But since 99.5% of buyers would be obtaining a loan to purchase the property, the buyer’s lender is going to require 1st position, which means the old loan will need to be paid off. Or unless the original lender subordinates their position and the buyer’s lender approves of this, providing the buyer would still qualify as far as debt ratios, CLTV, etc.
I’m trying to understand something… if a seller owes 180k on a home that’s worth 170k and sells for 170k, and the seller pays down the existing mortgage with the 170k, what happens to the 10k? Is the 10k note still secured by the home or does the seller have come out of pocket right away to pay off the 10k?
After the paydown of the 170K, there is still an encumbrance of mtg against the property for the balance owed; 10K payoff. If the property does transfer then the new buyer would be buying the property “Subject To” this mortgage, if it is not paid. It will then become the obligation of the new owner to satisfy the balance of 10K, plus interest.
Of course this is hypothetical and probably wouldn’t happen just that way. But that is the answer to the question, as asked.