Novation in a real estate contract means:
Correct Answer
B) A new party is substituted for an original party, completely releasing the original party from all obligations.
Novation is the substitution of a new party for an original party in a contract, with the full consent of all parties involved, completely releasing the original party from all obligations. This distinguishes novation from assignment: in an assignment, the original party typically retains secondary liability, whereas in novation, the original party is fully discharged. In Alaska real estate, novation commonly arises when a buyer assumes a seller's mortgage and the lender agrees to release the seller from further liability.
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Related Concepts
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
Liquidated damages are a predetermined amount of money specified in the contract that the non-breaching party is entitled to receive if the other party breaches. In real estate, the earnest money deposit typically serves as liquidated damages.
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
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