You are correct. Can be sold, but the mortgage holder must also go to the land office with your wife when the land is transferred. What arrangements your wife and the mortgage holder make for the property to be transferred is between them.
Also your wife is correct. If the mortgage is paid off before selling (ie: the Chanoot is unemcumbered) of course its easier, BUT not necessary as explained above.
Also more importantly you don't have to worry about your money being returned.