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.