Legal Question in Real Estate Law in California

It depends what the note says, if it allows pre-payment.

Mr. Selik is right in that he identifies one of the many reasons why the landlady might say no, but there are others, including whatever quid pro quo you are seeking in exchange for paying off the loan.

It is illegal to prohibit prepayment of a debt, although it is legal to require reasonable additional compensation of paid early, but only if that is in the terms of the note or loan agreement.

If you are using an escrow and want to receive title free and clear of prior liens and encumbrances, then the loan would have to be paid off through the sale proceeds for you to receive clear title. That process usually happens in escrow. Otherwise, you would purchase the house, subject to the existing mortgage/ deed of trust. If you are using financing to purchase the house, your lender is most likely not going to want to approve the loan until this happens, because their deed of trust would be subordinate to the prior deed of trust.

If you don't receive clear title, and the loan is not paid, you could lose the house in foreclosure, and given this current market, would most likely be out of a great deal of money, with no equity. In that situation, she may have run off with the purchase money, you would have nothing left, and the lender would probably be barred from suing her under California's anti-deficiency legislation.

I suggest you bring the purchase and sale agreement and any other relevant documents to a competent real estate attorney.