General information, not legal, tax or lending advice

Selling a House With a Mortgage in Tennessee

Still paying on your mortgage and thinking about selling your home in Manchester or Coffee County? You can sell a home you still owe on. The federal Consumer Financial Protection Bureau (CFPB) explains that when you sell, you use the money from the sale to pay off what you owe on your mortgage in full, pay the costs of selling and keep any remaining funds. It also notes you do not need approval from your mortgage servicer to sell your home, though it can help to tell them your plans.

This guide walks through how the payoff works, what federal rules and Tennessee law say about your payoff statement, your lien release and your escrow refund, and what your options are if a buyer wants to take over your loan or if you owe more than the home may sell for. It is general information from the CFPB, federal regulations, Tennessee statutes, the IRS, THDA, VA and HUD, not legal, tax or lending advice.

Your payoff amount is not your loan balance

The CFPB says your payoff amount is how much you will have to pay to satisfy the terms of your mortgage and completely pay off the debt, and it is different from the current balance on your statement. The payoff includes interest due through the day you intend to pay off the loan, and it may also include other fees you have been charged and have not yet paid. If your loan has a prepayment penalty, that may be added too.

That is why your net proceeds are figured from a payoff statement, not from your monthly statement. My seller closing costs guide and my post on how much you will walk away with show where the payoff fits in your estimate.

The payoff statement and the seven business day rule

Under the federal Truth in Lending rule at 12 CFR 1026.36(c)(3), for a loan secured by a dwelling, your servicer (or the creditor or assignee, as applicable) must provide an accurate statement of the total amount needed to pay the loan in full as of a specified date. It must be sent within a reasonable time, and in no case more than seven business days, after the servicer receives a written request from you or from any person acting on your behalf.

A few things to know:

Put the request in writing. The seven business day rule applies to written requests. Your closing attorney or title company can request it on your behalf with your authorization.
The statement is good through a date. Because interest runs daily, the payoff is figured as of a specified date. If closing moves, an updated payoff may be needed.
There are exceptions. If the loan is in bankruptcy or foreclosure, is a reverse mortgage or shared appreciation mortgage, or a natural disaster or similar circumstance gets in the way, the rule says the statement must be provided within a reasonable time instead.
Home equity lines count too. The payoff statement rule also applies to a home equity line of credit secured by a dwelling.

If you believe the servicer gave you the wrong payoff amount or failed to give you one, the CFPB says you can send a written notice of error, and the servicer must respond no later than seven days after receiving it, not counting weekends and legal public holidays. Many servicers list a special address for notices of error on your monthly statement, and the CFPB says you must use it if one has been set up.

Check for a prepayment penalty

The CFPB describes a prepayment penalty as a fee some lenders charge if you pay off all or part of your mortgage early. Not all mortgages have one, and if yours does, you agreed to it when you closed. It typically applies only if you pay off the entire balance, for example because you sold the home or refinanced, within a specific number of years, which the CFPB says is usually three or five.

The CFPB says your monthly mortgage statement must show the penalty for paying off your loan early, if there is one. Look for it now, before you list, so it is not a surprise on the payoff statement.

Every lien gets paid at closing

Your first mortgage may not be the only debt tied to the home. A home equity loan, a home equity line of credit or another recorded lien also has to be paid or released so the buyer can get clear title. Tennessee law, TCA 66 25 101, covers debts secured by a mortgage, a deed of trust or a lien kept in a deed of conveyance, and says that once the debt is paid, the holder must satisfy the record by a formal deed of release.

The buyer's title search will turn up recorded liens, so tell your closing attorney or title company early about every loan on the home and anything unusual, such as an old loan you paid off years ago that may never have been released. My title insurance guide explains how the title search works.

After closing: the lien release

Once your loan is paid at closing, the lender has to clear it from the public record. TCA 66 25 102 adds a deadline with a penalty. If the holder of a debt secured by Tennessee real property fails to record a proper release within 45 days after receiving a written request from the party who made the payment, the holder forfeits $100 to the party who asked. The statute says the party making the request can include the borrower, the buyer of the property or any closing agent or attorney who collected and sent the funds.

If the release still has not been recorded, the statute says to request it again, and if 30 days pass after the second request, the holder forfeits up to $1,000. If a lawsuit is filed to collect, the holder is also liable for reasonable expenses, attorney fees and court costs.

In Coffee County, releases and other documents are recorded with the Register of Deeds, 1341 McArthur Street, Suite 2, in Manchester, (931) 723 5130. Its FAQ says copies of recorded documents can be requested in person or by mail. Ask your closing agent how you will be told when the release is recorded, and keep a copy.

Your escrow refund

If your payment included escrow for property taxes and homeowners insurance, there may be money left in that account when the loan is paid off. Under the federal rule at 12 CFR 1024.34(b), the servicer must return any amount remaining in an escrow account it controls within 20 days of your paying the loan in full, not counting legal public holidays, Saturdays and Sundays.

There is one exception. If you agree, the servicer may instead credit the leftover escrow to the escrow account for a new loan, but only when the new loan comes from the same lender that made the old loan, from the owner or assignee of the old loan, or from a lender that uses the same servicer. If you are buying your next home with the same company, ask which you prefer.

The CFPB lists a missed escrow refund within 20 days of payoff as one of the errors to raise with a written notice of error. It also says servicers must keep records for at least one year after you pay off your loan. Property taxes are usually split between buyer and seller at closing; my Coffee County property taxes guide explains how bills work here.

If a buyer wants to take over your loan

Some buyers ask about assuming a seller's loan, especially when the seller's rate is lower than today's rates. Whether that is possible depends on your loan.

FHA loans

HUD's assumption guidance says all FHA insured mortgages are assumable. For FHA loans closed on or after December 15, 1989, the person taking over the loan must be credit qualified by the lender. For those loans, HUD says the lender must release the original borrower from liability when the buyer is found creditworthy and agrees to assume and pay the debt. Only the lender can sign that release, so ask for it in writing.

VA loans

VA Circular 26 23 10 says VA requires an assumption to be approved if the loan is current, the buyer is contractually obligated to buy the property and take on full liability, and the buyer is creditworthy under VA standards. A holder or servicer with automatic authority must decide within 45 calendar days of receiving a complete application, and a denial may be appealed to VA within 30 calendar days by the seller or the buyer.

The key question for a Veteran seller is entitlement:

Without a substitution of entitlement, VA says your entitlement stays tied to the loan until it is paid in full, so you would not get it restored.
With a substitution of entitlement, an eligible Veteran buyer who intends to live in the home and has enough entitlement may substitute theirs for yours, and your entitlement is restored.

The circular caps the assumption processing fee at $300 when the holder or servicer has automatic authority, or $250 when VA prior approval is needed. My VA home loans guide and Arnold AFB relocation guide cover more for military families.

Other loans

Ask your servicer in writing whether your loan can be assumed, what the buyer must qualify for and whether you will receive a written release of liability. An assumption does not by itself release you; get the release in writing before you close.

If you owe more than the home may sell for

If your home may be worth less than what you owe, talk to your servicer early. The CFPB describes a short sale as a sale of your home for less than what you owe on your mortgage, and it is a type of loss mitigation, an alternative to foreclosure. Here is what the CFPB says to expect:

You need approval. You request a loss mitigation application from your servicer, send a complete application and supporting documents, and get approval from your servicer and the owner of your loan.
Every lender on the home must agree. If you have other mortgages, you also need approval from those servicers.
Ask about the deficiency. The deficiency is the difference between what the home sells for and what you still owe. The CFPB says to ask your lender to waive it before you go through with a short sale, and if it does, to get the waiver in writing and keep it.
Understand the tax side. The CFPB says to make sure you understand the terms of your short sale, including tax implications. IRS Publication 523 says forgiven mortgage debt generally must be reported as income, and that the special exclusion for a main home was extended only through December 31, 2025, for debt forgiven under a written agreement made before January 1, 2026. Ask a tax professional; IRS Publication 4681 has the details.

The CFPB also notes that if your home is worth more than you owe, a regular sale is typically better for your finances and your credit than foreclosure, a short sale or a deed in lieu of foreclosure. If you are behind or worried about falling behind, the CFPB suggests contacting your servicer right away and a HUD approved housing counseling agency, which can help at low or no cost. The CFPB lists the HOPE Hotline at (888) 995 4673, open 24 hours a day, seven days a week.

Taxes to ask about

The home sale exclusion. IRS Publication 523 says that if you meet the ownership, residence and look back tests, you may exclude up to $250,000 of gain from the sale of your main home, or up to $500,000 for a married couple filing jointly. My downsizing guide explains the tests.
Form 1099 S. Publication 523 says that if you receive Form 1099 S, Proceeds From Real Estate Transactions, you must report the sale on Form 8949 even if you have no taxable gain.
THDA and other subsidized loans. If you bought with a loan from tax exempt mortgage bonds or a mortgage credit certificate, Publication 523 says you may owe a recapture tax when you sell, even if your gain is excluded, and you must file Form 8828 with your return whether you sold at a gain or a loss. THDA says all of its mortgages are subject to federal recapture provisions if the home is sold within the first nine years. My THDA guide covers the program.
Tennessee. The Tennessee Department of Revenue says the Hall income tax, which applied only to interest and dividends, was repealed for tax periods beginning on or after January 1, 2021.

A tax professional is the right person to apply these rules to your sale.

A seller loan checklist

Find your latest mortgage statement and any home equity loan or line statements
Check each statement for a prepayment penalty
List every loan or lien on the home for your closing agent
Request payoff statements in writing, or authorize your closing agent to do it
Confirm payoff wiring instructions by calling a saved number, never from an email alone
Keep making payments until closing unless your servicer tells you otherwise in writing
After closing, watch for your escrow refund and the recorded lien release
Ask a tax professional about the exclusion, Form 1099 S and any recapture

How I help

When you list with me, I gather your loan details early so your estimated net sheet starts from real payoff figures, not a guess. I work with your closing attorney or title company to order payoffs, keep the dates on track and make sure every lien is accounted for before closing. If a buyer asks about assuming your loan, or if a short sale may be on the table, I will help you ask your servicer the right questions in writing.

Keep reading:

Fair housing note: I work with every seller and follow the same steps for everyone.

This guide is general information from public sources, not legal, tax or lending advice. Rules change and every loan is different, so confirm the details with your servicer, your closing attorney or title company, and a tax professional.

Thinking about selling a home you still owe on?

I can help you figure out what you may walk away with before you list. Call or text me at (615) 497 1658, or request your free home value report below.

Common questions

Can I sell my house if I still have a mortgage?

Yes. The CFPB says you use the money from the sale to pay off the mortgage in full, pay the costs of selling and keep any remaining funds. You do not need your servicer's approval to sell, though it can help to tell them your plans.

Is my payoff amount the same as my loan balance?

No. The CFPB says the payoff includes interest due through the day you pay off the loan and may include unpaid fees and, if your loan has one, a prepayment penalty. That is why closing uses a payoff statement.

How long does a lender have to send a payoff statement?

Under 12 CFR 1026.36(c)(3), the servicer must send an accurate payoff statement within a reasonable time and no more than seven business days after receiving a written request, with exceptions for loans in bankruptcy or foreclosure, reverse mortgages and natural disasters.

When do I get my escrow refund after selling?

Under 12 CFR 1024.34(b), the servicer must return leftover escrow within 20 days of payoff, not counting legal public holidays, Saturdays and Sundays, unless you agree to have it credited to a new loan with the same lender or servicer.

What if my lender does not record the lien release?

TCA 66 25 101 requires a formal deed of release once the debt is paid. Under TCA 66 25 102, if the holder does not record it within 45 days of a written request it forfeits $100, and after a second request and 30 more days, up to $1,000, plus reasonable expenses, attorney fees and court costs if sued.

Can a buyer take over my mortgage?

Sometimes. HUD says all FHA insured mortgages are assumable, with credit qualification for loans closed on or after December 15, 1989. VA approves assumptions for creditworthy buyers, and a Veteran seller gets entitlement restored only with a substitution of entitlement. Get any release of liability in writing.

Matt Sargent is a Tennessee licensed affiliate broker with Keller Williams who helps buyers and sellers in Manchester and Coffee County. Call (615) 497 1658 or send a message.