Contracts
Under Texas real estate law, a 'novation' of a mortgage occurs when:
AThe mortgage is paid off early
BThe original borrower is released from liability and a new borrower is substituted, with the lender's consent✓ Correct
CThe interest rate is reduced by agreement
DThe property is refinanced without changing the parties
Explanation
Novation is the substitution of a new party for an original party in a contract, with all parties' consent. In real estate, a novation of a mortgage occurs when a buyer assumes the mortgage and the seller is released from all liability—the buyer becomes the new, primary obligor. Without a novation, the original borrower remains secondarily liable even if someone else assumes the mortgage.
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