Selling a House with a Mortgage

Alec: wanted to sell his house that he’d own for 35 years. After signing and having Clearman Lawyers review his Contract, it became clear that although he had paid off his home loan over five years ago, the mortgage was still registered on Title.

Although a Mortgage on Title does not prevent you from entering into a contract to sell your property, you need to be careful that:

your bank is aware that you’re selling the Property. This is done through a form called a Mortgage Discharge Authority or just simply a Discharge Authority (you’ll need to look online or speak to your bank to obtain this document); and
there is enough equity in the property to cover your mortgage balance plus any settlement costs or you have enough funds to cover the Mortgages

A mortgage is a type of security that secures a loan. This means that whenever anyone says they’re paying off their mortgage, they’re actually paying off their loan which is secured by that mortgage. A mortgage will remain on Title until:

the underlying loan is paid off and you request the mortgage to be removed; or
you sell the property and ask your Lender to release it’s mortgage (through a Discharge of Mortgage) in exchange for paying out the remainder of your loan; or
you refinance (switch lender’s) your property and request your current Lender to release it’s mortgage (through a Discharge of Mortgage)

The most common type of mortgage / loan in Queensland is a variable-rate mortgage, which varies according to market conditions. An interest only loan has a fixed interest rate and term. You could also split the loan to take advantage of some of the benefits of variable rate loans and fixed rate loans while mitigating the impact of interest rate increases.

Can you sell a house with a Mortgage? Yes, but when you sell the property, you must ensure that you have equity / your own funds to cover your mortgage balance plus any closing costs at settlement.

What if you sell the House for Less than the Mortgage Amount? If you sell the property for less than the mortgage amount, you will be liable to make up the difference with funds other than the sale proceeds.

What’s in a Discharge Authority? It is a form used to release the security for a loan that is registered on the Title. The mortgage stays on the title until it’s removed, even after the loan is completely paid off. Once you have fully repaid your loan, you should speak with your lender to have the mortgage properly discharged from the title, ensuring that your property is unencumbered.

Discharge Authority Form can be use when:

selling your property.
refinancing or paying off your loan.
releasing your property in mortgage obligations.
substituting an existing security for another.
releasing a guarantor from your loan.

What happens if a Mortgage is unable to be removed from the Title of Settlement? Paying off your mortgage in full does not remove it from Title. As a result, if a Mortgage is unable to be remove from Title at Settlement, it may delay a refinance or cause problems when trying to sell your property because you would need to get the lender to confirm that the loan was paid in full and that the original discharge of Mortgage was properly signed. These are just few of the issues you may encounter depending on your own situation.

What are the Processes Involved in Mortgage Discharge?

Fill out and submit a Discharge Form to your lender a month before the settlement date . Discharge requests can take up to. (2-4) weeks to process.
Allow enough time to your lender to complete the discharge process so that you can be certain that everything is ready for settlement.
Make sure you talk with your conveyancer very early so they can help you to be ready for the settlement date and arrange any outstanding balance from your mortgage that will be taken out from the sales proceeds.

When it comes to selling a property, there are many critical legal matters that need to be taken care of. This is where a solicitor can be of great help to make sure that all necessary legal documents are prepared and signed correctly and that there are no outstanding debts or other issues that could affect the sale.

Disclaimer

This page is not intended to provide legal advice and does not create a client-lawyer relationship. This post is provided for general information purposes and should not be relied upon as a substitute for legal advice. If you need help with legal advice for your particular situation, please contact our office (details below or on ‘Contact’ page) and we’ll be happy to assist you.

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