In all business dealings in mortgages, there sometimes arises the necessity of instituting foreclosure proceedings or taking some other steps to acquire the mortgaged property. Occasionally such proceedings require considerable time for their completion, owing to delays in legal processes, to the difficulty in communicating with parties interested, or for various other reasons.

In these cases, it is sometimes wise to transfer such mortgages from "Mortgages Receivable" to "Mortgages in Settlement," for by so doing the former account will always represent mortgages in good standing. The transfer is made by a journal entry of the following form:

Mortgages in Settlement .........................

$......

To Mortgages Receivable ...............

$......

To transfer mortgage No........ in course of settlement.

If the value of the property is equal to, or greater than, the principal and interest and charges, these latter should be included in the journal entry; otherwise they should be written off to Profit and Loss.

Occasionally instances occur where the value of the mortgaged property is less than the amount of the mortgage, through an original overestimate or through depreciation from some cause. In such cases, if the settlement is likely to be protracted or, as sometimes happens, it is desired to retain the lien of the mortgage rather than to acquire title, it may be advisable to write off the loss immediately, instead of continuing to show a fictitious asset.*

For example, if a mortgage for $5,000 should fall in arrears and it is decided to foreclose, the value of the property on the best estimates obtainable being only $3,000, the following would be the proper entry:

Mortgages in Settlement...............................

$3,000

Mortgage Deficiency Account............................

2,000

To Mortgages Receivable...............................

$5,000

For mortgage No...... in settlement, the estimated value being $3,000.

The Mortgage Deficiency account is usually written off by a debit entry against Surplus, Reserve, or Profit and Loss, as the occasion may require.

*Some accountants hold that nothing should be charged off to Profit and Loss until sale or settlement has been made.