Deed of Novation: Transferring Mortgage Obligations Explained

The purchase, sale or transfer of real property such as land or buildings attached to the land is accomplished through a deed and a title. Many people purchase real property through use of a mortgage loan that also comes with a legal obligation to repay it. One method of transferring to another party the obligation to repay a mortgage loan is the use of a deed of novation.

Transfers to Third Parties

A deed of novation can be used to transfer the rights and obligations of a current mortgage borrower to a new borrower or third party. If you have a mortgage loan and you have another party willing to assume it, a novation effectively transfers your rights and obligations to that person. A deed of novation, or formal novation transferring your mortgage loan to another, completely relieves you of any responsibility for your old loan.

Parties to a Novation

Approval of a deed of novation to transfer a mortgage loan's obligations to a third party isn't guaranteed. In the case of a mortgage loan, the current borrower and the third party willing to assume the loan as well as the lender must all agree to novation of the loan. Lenders don't typically approve mortgage assumption or novation requests, and the ones that do have their own submission, review and approval processes.