Detailed answer — steps, legal authority, and how the mortgage fits in

When a homeowner dies in New Jersey, ownership of the home does not automatically become free and clear. The property usually becomes part of the decedent’s estate and is administered through the Surrogate’s Court in the county where the decedent lived. Key points you need to understand:

1. Who can sell the house?

Only the person with legal authority to act for the estate can enter into a binding contract to sell estate property. That person will be one of these:

• The executor named in the will, after the Surrogate issues letters testamentary.
• The administrator appointed by the Surrogate if there is no will, after the Surrogate issues letters of administration.

If the will expressly gives the executor power to sell real estate, the executor usually can sell under that power and complete the closing after obtaining letters. If the personal representative lacks express authority in the will, the Surrogate’s Court (or a judge) may need to approve the sale or grant permission to sell.

For more about how the Surrogate’s Court administers estates in New Jersey, see the New Jersey Courts Surrogate information: https://www.njcourts.gov/courts/surrogates.html. The probate rules and statutory law governing estate administration are found under New Jersey probate law (Title 3B of the New Jersey Statutes): https://www.njleg.state.nj.us/.

2. What happens to the mortgage?

The mortgage does not vanish when the borrower dies. The mortgage remains a secured debt against the property. Common outcomes:

• Payoff at closing: The sale proceeds pay the mortgage in full (payoff demand obtained from the servicer), and the buyer receives clear title.
• Assumption: A buyer may assume the mortgage only if the lender permits assumptions and underwriting requirements are met. Many mortgages are not assumable without lender approval.
• Short sale: If the mortgage balance exceeds market value, the estate can try to negotiate a short sale with the lender’s approval; the lender must agree to accept less than the balance.
• Refinance by buyer: The buyer obtains new financing and the sale proceeds pay off the mortgage.
• Foreclosure: If the mortgage is in default and no steps are taken, the lender could start foreclosure — this creates urgency to resolve the debt.

3. Practical sale process during probate

1. Obtain legal authority. Get letters testamentary or letters of administration from the Surrogate. Real estate closers and title companies will require these documents to transfer title.
2. Contact the mortgage servicer. Ask for a current payoff statement and whether the loan is assumable.
3. Order an estate inventory and property appraisal. The Surrogate or estate administration usually requires an inventory of assets, including real estate value.
4. Determine whether court approval is required. If the will authorizes sale, letters plus normal closing documents may suffice. If not, or if interested parties object, you may need Surrogate or chancery court approval or a sale confirmed by the court.
5. Work with a real estate agent and title company experienced in probate sales. They can coordinate buyer financing, title clearance, and payoff demands.
6. Handle creditor claims. A mortgage is a secured creditor; other creditor claims may attach to the estate and affect net proceeds available to heirs.

4. Who gets the sale proceeds?

The estate’s personal representative must follow the priority rules for paying debts, taxes, funeral expenses, and administrative costs before distributing the remainder to beneficiaries or heirs. Mortgage payoff has priority as a secured claim against the property. Other claims (unsecured creditors) are paid from the estate in the order required by law.

5. Special issues to watch for in New Jersey

• Surviving spouse or family allowances: New Jersey law provides certain allowances for a surviving spouse or minor children which can affect available estate assets for distribution.
• Homestead or exemption rules: New Jersey has statutes and procedures that protect certain property or provide allowances to the family; these can influence whether the estate must set aside funds before a sale proceeds to distribution.
• Title problems: Mortgages, junior liens, unpaid property taxes, or unknown co-owners complicate closings and may require payoff or lien releases.

6. Common scenarios

Examples of likely outcomes:

• Mortgage balance is less than sale price: The personal representative can sell, use proceeds to pay the mortgage payoff and costs, and distribute the remainder to heirs (after following statutory notice and claims procedures).
• Mortgage balance exceeds value: The estate can attempt a short sale with lender approval, allow lender to foreclose, or the heirs can decide whether to contribute funds to avoid foreclosure.
• Lender won’t allow assumption and buyer won’t refinance: The sale may fail unless the estate pays off the loan or negotiates with the lender.

Helpful hints — practical checklist for selling during probate in New Jersey

• Get letters: Do not list or try to close a sale until the Surrogate issues letters to the personal representative.
• Get a payoff demand: Contact the mortgage servicer early to obtain a written payoff figure and to learn if the loan is assumable.
• Talk to the Surrogate’s office: Ask whether your sale needs court approval or a specific procedure in your county.
• Use professionals familiar with probate sales: Hire a real estate agent and a title company experienced with estate transactions and probate closings.
• Consider creditor timeline: In NJ, the estate must follow creditor notice rules; allow time for creditor claims before distributing sale proceeds when required.
• Check liens and taxes: Order a title search and confirm property taxes are current or arranged to be paid at closing.
• Weigh a short sale carefully: Short sales require lender approval and can delay distribution and close-out of the estate; get the lender’s written approval before contracting on a short sale.
• Get legal help for disputes: If heirs disagree, if the will is unclear, or if the lender resists, consult a probate attorney to seek court guidance or an order authorizing sale.