What entry records the payoff of the seller's existing mortgage at closing?

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Study for the Burk Baker National Test. Use flashcards and multiple choice questions with hints and explanations to prepare effectively. Get ready for your exam!

Multiple Choice

What entry records the payoff of the seller's existing mortgage at closing?

Explanation:
Paying off the seller’s existing mortgage at closing is recorded as a debit to the seller because the seller is eliminating a liability from the transaction. The payoff amount is taken from the closing proceeds to satisfy the lien, so it reduces what the seller ultimately nets. The buyer isn’t taking on that obligation, and it isn’t a flow of money to the buyer, so it isn’t a credit to the buyer. A credit to the seller would imply the seller is receiving money from this payoff, which isn’t the case; a debit to the buyer would imply the buyer owes the payoff, which is also incorrect.

Paying off the seller’s existing mortgage at closing is recorded as a debit to the seller because the seller is eliminating a liability from the transaction. The payoff amount is taken from the closing proceeds to satisfy the lien, so it reduces what the seller ultimately nets. The buyer isn’t taking on that obligation, and it isn’t a flow of money to the buyer, so it isn’t a credit to the buyer. A credit to the seller would imply the seller is receiving money from this payoff, which isn’t the case; a debit to the buyer would imply the buyer owes the payoff, which is also incorrect.

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