contracts
novation
Novation is the replacement of an existing contract or a party to a contract with a new one, by agreement of everyone involved. The original obligation is extinguished and the released party has no further liability. In real estate, novation commonly occurs when a lender agrees to substitute a new borrower who assumes a loan and releases the original borrower. It differs from assignment, where the original party may remain liable.
- Exam tip
- Assignment transfers rights but the assignor usually stays secondarily liable; novation releases the original party entirely. Look for the word "release."
- Example
- A buyer under contract is replaced by her sister, and the seller signs a new agreement releasing the original buyer. That is a novation.
Related terms & state variants
Sources
Source verification pending. Confirm current requirements with your state regulator.
Last verified: 2026-10-23