Payoff letter

Definition

A creditor's written figure that retires a debt on a given date.

Why It Matters

You are buying assets free and clear, and these documents are the proof; money should not move until every seller debt has one in hand. A lien nobody retired stays attached to the equipment you now own, which makes it your problem to clear and your lender's reason to hold up funding. The figures also drive the closing statement, since the amount that retires each debt comes straight off the seller's proceeds.

In numbers: If the seller's business still owes $180,000 on an equipment loan, the closing needs that lender's payoff letter stating the exact amount good through the closing date; the funds flow sends $180,000 there first, and the seller keeps what remains.