What is novation?

The definition of novation is the modification or termination of a legal obligation or transmission by another subsequent obligation. In the event that an obligation is extinguished, it will receive the name of extinctive or proper novation, while when there is a modification of the pre-existing obligation it is called modifying or improper novation.

What is novation?

The novation is a way to extinguish the obligations and requires the pre-existence of a legal relationship and the will of both parties to terminate it and replace it with a new obligation.

A fundamental element of the novation is the willingness of the parties to terminate the previous contractual relationship and change it for a new one. The novation is characterized by the following aspects:

  • There must be a obligation that it is about extinguishing.
  • A new obligation is born.
  • The new obligation must be different from the previous one.
  • The parts have the precise ability to novar.
  • The parties intend to novar.

Very often the term mortgage novation is used, which refers to any change made in a loan mortgage after the contracting, and that implies a new agreement of wills of the parties to renegotiate the conditions.

In this situation, the options for changes are varied. Examples of novation include, among others:

  • Increasing the amount of the loan to access new funds.
  • Change the term of the same.
  • Modify settlement systems, reference rates, etc.
  • Add or release warranties, whether personal or real estate.

Any of these options and others can be made through a novation, individually or by combining different possibilities.

In the case of a mortgage novation, it implies a new operation, so it will be necessary to assume a series of costes. In some cases, the property in question will have to be reassessed, since it is considering negotiating risks and prices.

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