Contracts
Novation in a Michigan real estate context means:
AAdding a new addendum to a signed contract
BThe substitution of a new party or new obligation for an old one, releasing the original party from liability✓ Correct
CRenegotiating the price of a contract after signing
DThe automatic renewal of a lease
Explanation
Novation substitutes a new contract, party, or obligation for an existing one, with all parties' consent, releasing the original party. In real estate, a buyer who assumes a seller's mortgage with the lender's consent and replaces the seller is an example of novation.
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Key Terms to Know
Option Contract
A 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.
Earnest MoneyA deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.
ContingencyA condition in a purchase contract that must be satisfied before the sale can proceed to closing.
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