Contracts
What is 'novation' in Delaware real estate contract law?
AThe introduction of new technology in the closing process
BThe substitution of a new contract, party, or obligation for an existing one — extinguishing the old obligation — such as when a new buyer assumes the seller's mortgage and the lender releases the seller from liability✓ Correct
CAn amendment to an existing contract that adds new contingencies
DThe legal process of canceling a contract due to fraud
Explanation
Novation is the substitution of a new party, obligation, or contract for an existing one, with all parties' consent, which extinguishes the original obligation. In real estate, novation occurs when a new buyer assumes a mortgage and the lender releases the original borrower from all liability — the new borrower substitutes for the old one.
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Key Terms to Know
Contingency
A condition in a purchase contract that must be satisfied before the sale can proceed to closing.
Option ContractA contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.
Short SaleA sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
Deed of TrustA security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.
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