diff --git a/contractcourt/htlc_incoming_contest_resolver.go b/contractcourt/htlc_incoming_contest_resolver.go
index 9d026cd0..98e52500 100644
--- a/contractcourt/htlc_incoming_contest_resolver.go
+++ b/contractcourt/htlc_incoming_contest_resolver.go
@@ -201,23 +201,26 @@ func (h *htlcIncomingContestResolver) Resolve() (ContractResolver, error) {
 		HtlcID: h.htlc.HtlcIndex,
 	}
 
-	event, err := h.Registry.NotifyExitHopHtlc(
+	resolution, err := h.Registry.NotifyExitHopHtlc(
 		h.htlc.RHash, h.htlc.Amt, h.htlcExpiry, currentHeight,
 		circuitKey, hodlChan, payload,
 	)
-	switch err {
-	case channeldb.ErrInvoiceNotFound:
-	case nil:
-		defer h.Registry.HodlUnsubscribeAll(hodlChan)
-
-		// Resolve the htlc directly if possible.
-		if event != nil {
-			return processHtlcResolution(*event)
-		}
-	default:
+	if err != nil {
 		return nil, err
 	}
 
+	defer h.Registry.HodlUnsubscribeAll(hodlChan)
+
+	// If the resolution is non-nil (indicating that a settle or cancel has
+	// occurred), and the invoice is known to the registry (indicating that
+	// the htlc is paying one of our invoices and is not a forward), try to
+	// resolve it directly.
+	if resolution != nil &&
+		resolution.Outcome != invoices.ResultInvoiceNotFound {
+
+		return processHtlcResolution(*resolution)
+	}
+
 	// With the epochs and preimage subscriptions initialized, we'll query
 	// to see if we already know the preimage.
 	preimage, ok := h.PreimageDB.LookupPreimage(h.htlc.RHash)
diff --git a/contractcourt/htlc_incoming_resolver_test.go b/contractcourt/htlc_incoming_resolver_test.go
index cce6343b..773b22c0 100644
--- a/contractcourt/htlc_incoming_resolver_test.go
+++ b/contractcourt/htlc_incoming_resolver_test.go
@@ -35,7 +35,10 @@ func TestHtlcIncomingResolverFwdPreimageKnown(t *testing.T) {
 	defer timeout(t)()
 
 	ctx := newIncomingResolverTestContext(t)
-	ctx.registry.notifyErr = channeldb.ErrInvoiceNotFound
+	ctx.registry.notifyResolution = invoices.NewFailureResolution(
+		testResCircuitKey, testHtlcExpiry,
+		invoices.ResultInvoiceNotFound,
+	)
 	ctx.witnessBeacon.lookupPreimage[testResHash] = testResPreimage
 	ctx.resolve()
 	ctx.waitForResult(true)
@@ -49,7 +52,10 @@ func TestHtlcIncomingResolverFwdContestedSuccess(t *testing.T) {
 	defer timeout(t)()
 
 	ctx := newIncomingResolverTestContext(t)
-	ctx.registry.notifyErr = channeldb.ErrInvoiceNotFound
+	ctx.registry.notifyResolution = invoices.NewFailureResolution(
+		testResCircuitKey, testHtlcExpiry,
+		invoices.ResultInvoiceNotFound,
+	)
 	ctx.resolve()
 
 	// Simulate a new block coming in. HTLC is not yet expired.
@@ -66,7 +72,10 @@ func TestHtlcIncomingResolverFwdContestedTimeout(t *testing.T) {
 	defer timeout(t)()
 
 	ctx := newIncomingResolverTestContext(t)
-	ctx.registry.notifyErr = channeldb.ErrInvoiceNotFound
+	ctx.registry.notifyResolution = invoices.NewFailureResolution(
+		testResCircuitKey, testHtlcExpiry,
+		invoices.ResultInvoiceNotFound,
+	)
 	ctx.resolve()
 
 	// Simulate a new block coming in. HTLC expires.
@@ -82,8 +91,10 @@ func TestHtlcIncomingResolverFwdTimeout(t *testing.T) {
 	defer timeout(t)()
 
 	ctx := newIncomingResolverTestContext(t)
-
-	ctx.registry.notifyErr = channeldb.ErrInvoiceNotFound
+	ctx.registry.notifyResolution = invoices.NewFailureResolution(
+		testResCircuitKey, testHtlcExpiry,
+		invoices.ResultInvoiceNotFound,
+	)
 	ctx.witnessBeacon.lookupPreimage[testResHash] = testResPreimage
 	ctx.resolver.htlcExpiry = 90
 	ctx.resolve()
diff --git a/htlcswitch/link.go b/htlcswitch/link.go
index 596b13ee..005b2e3b 100644
--- a/htlcswitch/link.go
+++ b/htlcswitch/link.go
@@ -2823,21 +2823,7 @@ func (l *channelLink) processExitHop(pd *lnwallet.PaymentDescriptor,
 		invoiceHash, pd.Amount, pd.Timeout, int32(heightNow),
 		circuitKey, l.hodlQueue.ChanIn(), payload,
 	)
-
-	switch err {
-
-	// Cancel htlc if we don't have an invoice for it.
-	case channeldb.ErrInvoiceNotFound:
-		failure := lnwire.NewFailIncorrectDetails(pd.Amount, heightNow)
-		l.sendHTLCError(pd.HtlcIndex, failure, obfuscator, pd.SourceRef)
-
-		return nil
-
-	// No error.
-	case nil:
-
-	// Pass error to caller.
-	default:
+	if err != nil {
 		return err
 	}
 
diff --git a/invoices/invoiceregistry.go b/invoices/invoiceregistry.go
index 0ee0364c..0b316324 100644
--- a/invoices/invoiceregistry.go
+++ b/invoices/invoiceregistry.go
@@ -758,11 +758,21 @@ func (i *InvoiceRegistry) NotifyExitHopHtlc(rHash lntypes.Hash,
 			return updateDesc, nil
 		},
 	)
-	if err != nil {
-		debugLog(err.Error())
+	switch err {
+	case channeldb.ErrInvoiceNotFound:
+		// If the invoice was not found, return a failure resolution
+		// with an invoice not found result.
+		return NewFailureResolution(
+			circuitKey, currentHeight, ResultInvoiceNotFound,
+		), nil
 
+	case nil:
+
+	default:
+		debugLog(err.Error())
 		return nil, err
 	}
+
 	debugLog(result.String())
 
 	if updateSubscribers {
diff --git a/invoices/invoiceregistry_test.go b/invoices/invoiceregistry_test.go
index 27a63c25..2750e942 100644
--- a/invoices/invoiceregistry_test.go
+++ b/invoices/invoiceregistry_test.go
@@ -585,12 +585,16 @@ func TestUnknownInvoice(t *testing.T) {
 	// succeed.
 	hodlChan := make(chan interface{})
 	amt := lnwire.MilliSatoshi(100000)
-	_, err := ctx.registry.NotifyExitHopHtlc(
+	result, err := ctx.registry.NotifyExitHopHtlc(
 		testInvoicePaymentHash, amt, testHtlcExpiry, testCurrentHeight,
 		getCircuitKey(0), hodlChan, testPayload,
 	)
-	if err != channeldb.ErrInvoiceNotFound {
-		t.Fatal("expected invoice not found error")
+	if err != nil {
+		t.Fatal("unexpected error")
+	}
+	if result.Outcome != ResultInvoiceNotFound {
+		t.Fatalf("expected ResultInvoiceNotFound, got: %v",
+			result.Outcome)
 	}
 }
 
diff --git a/invoices/update.go b/invoices/update.go
index fcf7a8e1..2d512dbe 100644
--- a/invoices/update.go
+++ b/invoices/update.go
@@ -81,6 +81,10 @@ const (
 
 	// ResultHtlcSetOverpayment is returned when a mpp set is overpaid.
 	ResultHtlcSetOverpayment
+
+	// ResultInvoiceNotFound is returned when an attempt is made to pay an
+	// invoice that is unknown to us.
+	ResultInvoiceNotFound
 )
 
 // String returns a human-readable representation of the invoice update result.