Contracts
In Pennsylvania, what is 'novation' as it applies to an assumed mortgage?
AA court order novating (making new) an expired real estate contract
BWhen a lender agrees to substitute a new borrower for the original borrower in a mortgage assumption, releasing the original borrower from liability✓ Correct
CA PHFA refinancing program replacing an old loan with a new one at lower rates
DThe PREC process for replacing an expired license with a new one
Explanation
In a mortgage assumption with novation, the lender agrees to accept the new buyer as the sole obligor, releasing the original seller/borrower from any further liability. Without novation, the original borrower remains secondarily liable if the assuming buyer defaults. In Pennsylvania, lenders are not required to grant novation — they may require the assuming buyer to qualify independently. When novation is not granted, sellers should negotiate an indemnification from the assuming buyer.
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