Selling a home is already a big decision — but selling one with a second mortgage or HELOC (Home Equity Line of Credit) in California can feel even more overwhelming. The good news? It’s more common than most homeowners realize, and thousands of sellers do it every year.
In fact, according to ATTOM Data, 15–18% of California homes have a second lien, often from renovations, debt consolidation, or covering high living expenses. So if you’re looking to sell with a second mortgage, HELOC balance, or maxed-out credit line — you’re not alone.
This guide breaks down exactly how the process works, what to expect at closing, and the fastest solutions if your equity is tight or you’re behind on payments.
(And of course, as always, Mrs. Property Solutions can help if you need an as-is, fast sale.)
Learn more in our full guide on how to sell your house when you still owe the bank in California.
Can You Sell a House With a Second Mortgage or HELOC in California?
Absolutely — yes.
You can sell your home even if you still owe on:
- A traditional second mortgage
- A HELOC (open or closed)
- A home equity loan
- A PACE loan (although different rules apply)
- A solar loan tied to the property
- A hard money junior lien
The only requirement:
All liens must be paid off during closing (unless the buyer agrees to assume them, which is rare).
Most California sellers don’t realize this is just like selling with a first mortgage — escrow simply pays off all loans in order of priority from the sale proceeds.
How Escrow Handles Second Mortgages and HELOCs (Step-by-Step)
1. Escrow orders payoff statements from ALL lenders
Each lender sends an official payoff demand that includes:
- Remaining balance
- Daily interest
- Fees
- Any late charges
- Reconveyance fees
Most HELOCs also include a $75–$350 closure fee.
2. Payoffs are subtracted from your sale proceeds
This happens automatically. You never need to manually pay anything — escrow deducts every lien from the sale price.
3. Liens are removed from the title
Once paid, each lender records a full reconveyance, clearing the title for the buyer.
That’s it.
The process is routine, even with 2–4 liens on record.
Example: How a Sale Looks With a HELOC and First Mortgage
Here’s a real-world style example from a seller we helped this year:
“Tony” from Lancaster had:
- $385,000 first mortgage
- $48,000 HELOC
- Behind 2 months on payments
His home sold for $515,000. At closing:
- Escrow paid off both loans
- Paid his delinquent payments
- Paid the HELOC closure fee
- Tony walked away with $62,000 cash
He told us he thought he might not be able to sell because of the HELOC. But California closings handle this every day — it’s normal.
What If You’re Behind on the Second Mortgage or HELOC?
Being behind on a junior loan is extremely stressful because these lenders tend to be aggressive. They can:
- Add daily interest
- Send the account to collections
- File a Notice of Default (NOD)
- Sue for repayment after foreclosure (in some cases)
But the good news:
You can still sell the house — even if both loans are in default.
We’ve helped multiple homeowners who were:
- 90+ days late
- Received multiple threat letters
- Felt they didn’t have enough equity
Selling stops the pressure and prevents the account from escalating into foreclosure.
Example: Behind on a HELOC and Facing NOD
A seller in San Bernardino, “Lisa,” was 5 months behind on her HELOC. She feared the lender would foreclose. We helped her:
- Sell the home as-is
- Pay off both liens
- Stop the foreclosure timeline
- Walk away without a deficiency balance
Even if you’re late or already received a Notice of Default — you still have options.
Will My Equity Be Enough to Pay Off a Second Mortgage?
To sell conventionally (MLS listing with an agent), you’ll need:
Enough equity to cover:
- First mortgage payoff
- Second mortgage/HELOC payoff
- Agent commissions (typically 5–6%)
- Buyer credits or repairs
- Closing costs (1–2%)
If your equity is tight, a traditional buyer may not work.
In California, the average seller pays $22,000–$34,000 in selling costs.
If you don’t have that kind of cushion, you still have solutions:
Options If You Owe More Than Your House Is Worth
1. Sell directly to an investor or cash buyer
Cash buyers (like us!) often pay closing costs and buy as-is. This works well if:
- You have little to no equity
- You’re behind on payments
- The home needs repairs
- You need a fast sale
This avoids commissions and reduces the amount of equity required.
2. Ask your agent for a commission reduction
Some agents will reduce their fee if the numbers are tight.
3. Short sale (last resort but possible)
If you owe more than the home will sell for, lenders may approve a short sale — especially if:
- You’re behind
- You have a hardship
- You’re facing foreclosure
Can You Sell a House With a Maxed-Out HELOC?
Yes.
Even if the HELOC is fully drawn, interest-only, or already frozen, you can still sell.
The lender still receives their payoff at closing, and the lien is cleared.
Watch out for:
Some HELOCs have prepayment penalties — and these can vary widely depending on your lender’s terms. It’s helpful to review the Consumer Financial Protection Bureau’s HELOC guidelines to understand how your payoff may be structured. Most penalties are small, but you should know before you sell.
How Fast Can You Sell a Home With a Second Mortgage?
Traditional sale:
30–60 days depending on buyer financing and title issues.
Cash sale (as-is):
7–14 days — especially helpful if the second mortgage is pressuring you.
Special Situations Sellers Should Know
HELOC With a Balance That Keeps Growing
Some lines continue accumulating interest daily — meaning your payoff increases every week. A fast sale often saves money.
HELOC Turned Into a Collection Account
Even if the loan is charged-off, the lien still must be paid at closing. You can negotiate the payoff amount in some situations.
PACE Loans or Solar Liens
These do not always need to be paid off — depending on the buyer.
Do I Need to Pay Off the HELOC Before Listing?
No — escrow handles it.
Most California homeowners sell with outstanding balances.
But if you’re unsure about what you owe, you can:
- Pull a preliminary title report
- Contact each lender for updated payoffs
What If You Don’t Have Enough Equity to Pay Both Loans?
This is where sellers often panic — but you still have options:
✔️ Option 1: Request a payoff discount from the second lender
This is surprisingly common when:
- The first mortgage eats up most of the equity
- The junior lienholder risks getting nothing in foreclosure
We helped a seller in North Hollywood where the second lender agreed to accept $9,500 on a $21,000 balance just to avoid a total loss.
✔️ Option 2: Sell to a cash buyer who covers closing costs
This reduces your cost burden dramatically.
✔️ Option 3: Short sale (as mentioned above)
A short sale may be the best option if your home is truly underwater. With lender approval, you can sell the property for less than the total amount owed on all loans. While it requires documentation and hardship proof, it can prevent foreclosure and settle both liens at closing.
Documents You’ll Need to Sell a Home With a HELOC or Second Mortgage
You don’t need anything special — just:
- Loan numbers
- Lender names
- Updated payoff statements
- Contact info for your lenders
Escrow handles the rest.
Pros & Cons of Selling With a Second Mortgage or HELOC
Pros
- You can stop interest from growing
- Pay off all debt at once
- Avoid foreclosure pressure
- Simplify your finances
- Walk away with remaining equity
Cons
- Less equity left over
- Payoff amounts may be higher than expected
- Negotiating through junior lenders can be slow
How Mrs. Property Solutions Helps Sellers in This Situation
When you work with us:
- We buy homes as-is
- We pay all closing costs
- No agent fees
- We can close in as little as 7 days
- We help with lender negotiations (especially helpful for second mortgages)
We’ve helped sellers in situations where:
- Both loans were behind
- The second lender was threatening foreclosure
- Equity was tight
- The home needed repairs
- Sellers needed to relocate fast
We’re here to make the process simple — even if you feel underwater or overwhelmed.
If you want a fair, no-obligation cash offer, reach out anytime.