Does selling a property factor in principal & interest?

[Kevin K.]

I was talking with a friend and we discussed something that I havent really considered before.

He claimed that he was underwater on his house because if we wanted to sell it he would only be able to sell it at market value while still being significantly underwater on his loan because he would be required to pay both the principal and the 30 years of mortgage interest to the bank. So in essence, if he bought the house at $175,000 and with 30 years of amortization he would pay a total of $250,000 over the loans lifetime; as a result he would make no profit unless the house sold for >250k. 

It may be a pretty basic question, but I havent considered this before. I was under the impression (perhaps incorrectly) that if you bought a property you would only be required to factor in the principal (and closing costs) when you sold the property. I thought the buyer of your property would inherit the bank's mortgage loan (and the interest over its lifetime) and at that time refinance as they saw fit. 

I hope this question made sense, any insight regarding this would be helpful.