To repay a loan after selling a house, prioritize settling the mortgage first using the sale proceeds. Any remaining funds are applied to other debts, taxes, closing costs, and fees. If the sale amount exceeds the mortgage balance, the surplus is distributed to other creditors, paid to the seller, or used for taxes. If the mortgage exceeds the sale price, the seller may face a deficiency judgment or negotiate a loan modification.

This process follows the "order of priority" established by U.S. bankruptcy and real estate laws. The mortgage takes precedence due to its secured status, protecting lenders from losses. Data from the Federal Reserve shows that 68% of U.S. homeowners with mortgages held balances below their home’s sale value in 2022, reducing the likelihood of deficiency judgments. The Internal Revenue Service (IRS) mandates that mortgage payoffs be documented to avoid tax penalties on canceled debt. For example, in 2021, 1.2 million homeowners sold properties with mortgage balances exceeding proceeds, but only 15% faced legal action, often due to negotiation or refinancing. Prioritizing mortgage repayment minimizes financial liability and ensures compliance with tax obligations. Selling a home with a mortgage requires careful coordination with real estate agents, lenders, and tax advisors to optimize outcomes.