Hammond sells her house to Mendoza for $165,000 subject to a mortgage from Imperial Bank for $90,000. Hammond's mortgage had been arranged at a time when interest rates were low, and prevailing interest rates are now much higher. Mendoza would very much like to assume Hammond's obligation to pay under the existing mortgage, rather than arrange a more costly replacement from his own banker. Imperial Bank is indifferent as to who is repaying the debt as Mendoza is just as acceptable a credit risk as was Hammond. Mendoza pays Hammond the $75,000 difference and takes over both the house and her mortgage. This arrangement is an example of

Question

Quizplus · Accepted Answer

This arrangement is an example of a novation, where a new contract replaces an old one, with the consent of all parties involved, including the bank. In this case, Mendoza assumes Hammond's mortgage obligations under a new agreement, with the bank's consent.

Hammond Sells Her House to Mendoza for $165,000 Subject to a Mortgage