In the same example, the payoff on Susan's existing mortgage is recorded as a debit to which party?

In the same example, the payoff on Susan's existing mortgage is recorded as a debit to which party?

• A. Henry
• B. Susan
• C. The title company
• D. The lender

Answer: (A)

The key idea is how payoffs of existing loans are shown on the closing statement. When there’s an outstanding mortgage on the property, the seller must have that loan paid off as part of the sale. That payoff amount is treated as a debit to the seller (the party who must satisfy the debt) and a credit to the lender (the party receiving the payoff). This reduces the seller’s proceeds, since funds from the closing are used to discharge the loan.

In the given scenario, Henry is the seller, so the payoff on the mortgage tied to Susan’s loan is recorded as a debit to Henry. The lender would be credited for receiving the payoff, the title company isn’t debited for this item, and the buyer isn’t responsible for paying off the seller’s loan.