- Official section
- National V.A: General contract law and party obligations
- Broker weight
- 19% of the national broker portion
- Expected scored items
- Contracts account for about 17 of 100 items
Illinois exam glossary
Novation
A novation is not a name change on a contract. It is a controlled replacement. The old duty must exist, every necessary party must assent to a valid substitute, and the parties must intend to extinguish the former obligation. If the original buyer, tenant, borrower, or contractor remains liable after someone else steps in, you are probably looking at assignment, delegation, assumption, or amendment rather than novation.
Last updated: August 1, 2026
What does this exam area cover?
Short answer: Illinois novation has four elements: a prior valid obligation, an all-party agreement to a new contract, a valid new contract, and intent to extinguish the old contract. It can substitute a party or an obligation. The discharge intent is not presumed, and the person asserting release bears the burden of proof. Assignment transfers rights, delegation transfers performance, and assumption adds responsibility, but none necessarily releases the original party. Use an express written release, confirm authority and consideration, obtain required creditor, lender, landlord, or seller consent, and update every connected contract and security document.
This guide follows the PSI Illinois Candidate Information Booklet effective June 24, 2026, Pielet v. Pielet, 2012 IL 112064, later official Illinois decisions applying substituted-contract, intent, burden, lease, validity, and consideration principles, 740 ILCS 80/2, 5 ILCS 175/5-120, and current 68 Ill. Adm. Code 1450.775 effective July 7, 2025, all checked through August 1, 2026. Mortgage assumptions, due-on-sale clauses, lease assignments, government contracts, guaranties, construction contracts, entity mergers, bankruptcy, probate, land trusts, installment sales, permits, licenses, and recorded security interests can impose additional consent and release requirements.
What is on the official outline?
- Topic
- Identify the prior obligation
- What to know
- purchase contract, lease, note, mortgage, guaranty, option, service contract, installment duty, parties, terms, validity, and balance
- Best exam move
- A novation needs an existing valid duty to replace.
- Topic
- Identify the proposed substitute
- What to know
- new buyer, tenant, borrower, seller, landlord, creditor, debtor, contractor, duty, payment, property, and performance
- Best exam move
- State whether the change replaces a person, an obligation, or both.
- Topic
- Obtain all-party agreement
- What to know
- outgoing party, incoming party, remaining party, creditor, obligee, offer, acceptance, mutual assent, signatures, and effective date
- Best exam move
- Consent from only the transferor and transferee cannot release the person owed performance.
- Topic
- Create a valid new contract
- What to know
- consideration, capacity, legality, authority, definite terms, writing, signature, condition, approval, and delivery
- Best exam move
- The substitute must satisfy ordinary contract requirements rather than depend on the old contract alone.
- Topic
- Prove extinguishment intent
- What to know
- release, discharge, substitute, supersede, terminate old liability, no further obligation, sole obligor, complete replacement, and objective intent
- Best exam move
- Find clear words or compelling circumstances showing the old duty no longer survives.
- Topic
- Apply the burden of proof
- What to know
- party claiming discharge, preponderance of evidence, not presumed, document, communication, conduct, payment, performance, and credibility
- Best exam move
- When evidence is ambiguous, do not assume the original party was released.
- Topic
- Distinguish assignment
- What to know
- assignor, assignee, right, benefit, transfer, notice, restriction, anti-assignment clause, writing, and title instrument
- Best exam move
- Assignment moves a right but does not necessarily erase the assignor's duties.
- Topic
- Distinguish delegation
- What to know
- delegator, delegate, duty, performance, obligee, personal skill, prohibited delegation, failure, liability, and consent
- Best exam move
- Delegated performance leaves the original obligor liable unless a novation releases it.
- Topic
- Distinguish assumption
- What to know
- assumption agreement, mortgage debt, lease duty, contract liability, incoming party, original borrower, original tenant, creditor release, and personal liability
- Best exam move
- Assumption can add a liable party without discharging the first one.
- Topic
- Distinguish subject-to title
- What to know
- existing mortgage, lien remains, buyer takes title, no personal promise, foreclosure risk, seller liability, lender rights, due-on-sale, and disclosure
- Best exam move
- Taking subject to debt is not an assumption and is even further from a lender-approved novation.
- Topic
- Analyze mortgage substitution
- What to know
- lender consent, underwriting, credit approval, original note, new note, assumption, release, mortgage, guaranty, due-on-sale, and recording
- Best exam move
- A buyer and seller cannot privately force the lender to release the original borrower.
- Topic
- Analyze lease substitution
- What to know
- landlord, original tenant, replacement tenant, lease assignment, sublease, rent, deposit, defaults, guaranty, and landlord release
- Best exam move
- Landlord acceptance of rent is evidence to consider but does not always prove intent to discharge the original tenant.
- Topic
- Analyze buyer substitution
- What to know
- purchase contract, nominee, assignment right, seller consent, incoming buyer, earnest money, financing, representations, closing, and release
- Best exam move
- A nominee or assignee can close while the first buyer remains liable unless the seller agrees to novation.
- Topic
- Analyze seller substitution
- What to know
- entity conversion, trust, estate, successor, deed authority, title holder, contract duties, representations, liabilities, and buyer consent
- Best exam move
- Changing who conveys or performs needs authority and cannot silently eliminate the original seller's obligations.
- Topic
- Preserve or replace security
- What to know
- mortgage, guaranty, security deposit, escrow, lien, collateral assignment, title policy, bond, priority, and release
- Best exam move
- Discharging the old obligation can affect the security that supported it, so documents must be coordinated.
- Topic
- Allocate existing breaches
- What to know
- past default, accrued rent, unpaid tax, damage, notice, cure, claim, waiver, release, indemnity, and survival
- Best exam move
- Specify whether novation releases accrued claims or only substitutes future performance.
- Topic
- Use precise written terms
- What to know
- old contract date, replaced party, new party, assumed duty, express discharge, consideration, effective date, condition precedent, survival, and signatures
- Best exam move
- Write the release directly rather than asking a court to infer it from scattered conduct.
- Topic
- Authenticate the change
- What to know
- all signatories, written consent, initials, addition, deletion, alteration, electronic signature, true copy, 24 hours, and record retention
- Best exam move
- Follow Illinois Rule 1450.775 when a signed transaction document is changed or replaced.
- Topic
- Update transaction systems
- What to know
- escrow ledger, title commitment, lender file, lease ledger, brokerage file, insurance, tax record, notices, closing statement, and contact authority
- Best exam move
- The operational file must match the legally substituted parties and obligations.
- Topic
- Protect licensee boundaries
- What to know
- broker, attorney, lender, title company, landlord, escrowee, approved form, legal drafting, release opinion, negotiation, and referral
- Best exam move
- A licensee can gather approvals and facts but should not declare the old party discharged without clear legal documentation.
Which distinctions produce the most mistakes?
- Terms
- Novation vs. assignment
- Difference
- Novation substitutes and extinguishes the old obligation with all required consent. Assignment transfers a contractual right and does not itself discharge duties.
- Question cue
- Replace and release versus transfer benefit.
- Terms
- Novation vs. delegation
- Difference
- Novation releases the original obligor. Delegation authorizes another performer while the original obligor generally remains liable.
- Question cue
- Discharge versus performance transfer.
- Terms
- Novation vs. assumption
- Difference
- Novation replaces and releases. Assumption makes the incoming party responsible but does not automatically release the original party.
- Question cue
- Substitute liability versus added liability.
- Terms
- Assumption vs. subject to
- Difference
- An assuming buyer personally agrees to pay the debt. A subject-to buyer takes title with the lien in place without necessarily assuming personal liability.
- Question cue
- Personal promise versus lien exposure.
- Terms
- Novation vs. amendment
- Difference
- Novation replaces an obligation or party and extinguishes the old duty. Amendment changes selected terms while leaving the original contract relationship in place.
- Question cue
- Replace duty versus revise detail.
- Terms
- Novation vs. rescission
- Difference
- Novation replaces the old bargain with a valid substitute. Rescission unwinds the bargain and seeks restoration rather than replacement.
- Question cue
- New contract versus no contract.
- Terms
- Novation vs. accord and satisfaction
- Difference
- Novation creates a substituted contractual obligation. Accord and satisfaction settles an existing claim through agreed substitute performance that is completed.
- Question cue
- Replace ongoing duty versus settle disputed claim.
- Terms
- Novation vs. sublease
- Difference
- Novation releases the original tenant if landlord and all parties agree. A sublease creates a tenant-subtenant relationship while the original lease and tenant liability remain.
- Question cue
- Landlord-approved release versus layered tenancy.
- Terms
- New payer vs. new obligor
- Difference
- A third person can make payments without becoming solely responsible. A new obligor undertakes the contract duty through the required agreement.
- Question cue
- Payment source versus legal liability.
- Terms
- Consent vs. release
- Difference
- Consent may permit assignment or substitution. Release specifically extinguishes the outgoing party's obligation.
- Question cue
- Allow change versus discharge liability.
- Terms
- Express release vs. inferred intent
- Difference
- An express release directly states discharge. Inferred intent depends on circumstances and carries a harder proof burden because extinguishment is not presumed.
- Question cue
- Clear words versus disputed implication.
- Terms
- Party substitution vs. name correction
- Difference
- Substitution replaces a legal person. A correction fixes how the same legal person was identified without changing who holds the rights and duties.
- Question cue
- Different person versus accurate label.
The R-E-P-L-A-C-E check
- Required old duty: confirm the prior contract is valid, identify every party, obligation, accrued claim, security instrument, and restriction on transfer.
- Everyone consents: obtain objective agreement from the outgoing party, incoming party, creditor or obligee, and every other person whose rights change.
- Proper new contract: prove definite terms, consideration, capacity, legality, authority, writing, signatures, approvals, delivery, and effective conditions.
- Liability ends: state expressly that the identified old obligation is extinguished and the outgoing party is discharged rather than merely assisted.
- Ancillary documents: coordinate note, mortgage, guaranty, lease, deposit, title, escrow, insurance, tax, brokerage, and closing records.
- Claims and survival: allocate past defaults, accrued charges, representations, indemnities, fees, notices, and provisions that remain effective.
- Evidence: retain the original and substitute contracts, all-party consent, authority, approval, consideration, release, true-copy delivery, and operational updates.
- Element
- Old obligation
- Proof
- Prior valid contract
- Failure result
- Nothing valid to replace
- Element
- All-party agreement
- Proof
- Consent to new bargain
- Failure result
- Assignment or attempted change
- Element
- New contract
- Proof
- Valid substitute terms
- Failure result
- No enforceable replacement
- Element
- Extinguishment
- Proof
- Intent to discharge old duty
- Failure result
- Original liability survives
- Element
- Authority
- Proof
- Each signer may bind party
- Failure result
- Consent ineffective
- Element
- Integration
- Proof
- Security and records updated
- Failure result
- Conflicting obligations remain
How do the rules work in scenarios?
Complete buyer novation
Scenario: Seller, original buyer, and replacement buyer sign an agreement substituting the replacement, accepting its new promises, and expressly releasing the original buyer from every future purchase duty.
- A valid prior purchase contract exists.
- All affected parties assent to a valid substitute.
- The original buyer's duty is expressly extinguished.
Answer: The facts establish a buyer novation.
Assignment without release
Scenario: Buyer assigns the purchase contract as permitted. Seller consents to the assignee closing but states that original buyer remains liable if assignee defaults.
- Rights and performance shift to the assignee.
- Seller expressly preserves original buyer's liability.
- Extinguishment intent is absent.
Answer: This is an assignment and delegation, not a novation.
Mortgage assumption without lender release
Scenario: Deed says buyer assumes seller's loan. Buyer and seller sign, but the lender never agrees to release seller from the note.
- Buyer has undertaken payment responsibility under the agreement.
- The lender did not assent to discharge its original borrower.
- Private parties cannot force the creditor's release.
Answer: Seller remains potentially liable to the lender absent a lender-approved release.
Replacement tenant with express release
Scenario: Landlord, outgoing tenant, and incoming tenant sign a new lease that cancels the old lease, transfers the deposit, allocates past rent, and releases outgoing tenant after the effective date.
- The parties address old and new obligations.
- Landlord agrees to the incoming tenant.
- The release states when old liability ends.
Answer: The signed package supports a lease novation.
Landlord accepts one rent check
Scenario: Original tenant lets a friend occupy the unit. Landlord deposits one check from the friend but repeatedly states original tenant remains liable and never signs a substitution.
- A new payment source is not necessarily a new sole obligor.
- Landlord preserves the old lease liability.
- Extinguishment cannot be presumed from one deposit.
Answer: The facts do not prove novation.
Valid amendment rather than novation
Scenario: Buyer and seller extend closing and reduce price, while expressly confirming that the same contract and parties remain in force.
- Selected terms change.
- No party or core obligation is replaced.
- The parties preserve rather than extinguish the old agreement.
Answer: This is an amendment, not a novation.
Unauthorized entity substitution
Scenario: A broker changes buyer from an individual to a newly formed LLC on the signed contract without seller's consent, all-party initials, or proof that the LLC accepted the obligations.
- The LLC is a different legal person.
- All-party agreement and valid substitute proof are missing.
- The broker cannot unilaterally release the individual buyer.
Answer: No novation occurred, and the alteration violates document safeguards.
What are the common exam traps?
- Trap
- Calling every substitution a novation
- Correction
- Require all four Illinois elements, especially intended extinguishment of the old duty.
- Trap
- Skipping the old valid obligation
- Correction
- There must be an enforceable existing duty for the new contract to replace.
- Trap
- Getting consent from only two parties
- Correction
- Include the creditor or obligee and every party whose rights or liability changes.
- Trap
- Assuming discharge
- Correction
- Illinois does not presume extinguishment; the claimant bears the proof burden.
- Trap
- Confusing assignment with release
- Correction
- Transferred rights do not automatically eliminate the assignor's duties.
- Trap
- Confusing delegation with release
- Correction
- The delegating party remains responsible unless the obligee agrees to novation.
- Trap
- Calling assumption a lender release
- Correction
- Obtain the lender's express agreement to discharge the original borrower.
- Trap
- Calling subject-to title an assumption
- Correction
- A subject-to buyer may take foreclosure risk without personal liability on the note.
- Trap
- Using rent acceptance alone
- Correction
- Evaluate the full lease, communications, performance, and landlord's discharge intent.
- Trap
- Ignoring consideration
- Correction
- The substituted agreement must itself be a valid contract.
- Trap
- Ignoring authority
- Correction
- Verify that each signer can bind the owner, entity, trust, estate, lender, or landlord.
- Trap
- Leaving accrued defaults vague
- Correction
- State whether existing rent, damage, fees, and other claims survive or are released.
- Trap
- Forgetting security documents
- Correction
- Coordinate mortgages, guaranties, deposits, liens, escrow, and title instruments.
- Trap
- Altering the signed contract silently
- Correction
- Use all-signatory written consent, authentication, true-copy delivery, and a clean substitute agreement.
- Trap
- Letting a broker declare release
- Correction
- A broker should not give a legal conclusion when consent or extinguishment is disputed.
Can you answer these original practice questions?
These questions are original study items aligned to the published outline. They are not copied, recalled, or predicted PSI questions.
1. What does a novation do?
- Substitutes a new party or duty and extinguishes the old obligation
- Records a deed automatically
- Transfers only a right
- Ends no liability
Show answer and explanation
Answer: Substitutes a new party or duty and extinguishes the old obligation
Discharge of the former obligation is the defining result.
2. What is the first Illinois novation element?
- A previous valid obligation
- A future listing
- A recorded survey
- A cash commission
Show answer and explanation
Answer: A previous valid obligation
The substitute must replace an existing enforceable duty.
3. Who must agree to the new contract?
- All affected parties
- Only the incoming party
- Only the broker
- Only the outgoing party
Show answer and explanation
Answer: All affected parties
The obligee's rights cannot be changed without its consent.
4. Is intent to extinguish the old duty presumed?
- No
- Yes
- Only in leases
- Only after closing
Show answer and explanation
Answer: No
The party claiming discharge must prove novation by a preponderance of the evidence.
5. Does assignment alone release the assignor's duties?
- No
- Yes
- Only when recorded
- Only for cash deals
Show answer and explanation
Answer: No
Assignment transfers rights; a novation is needed for a complete release.
6. Does delegation ordinarily release the delegator?
- No
- Yes
- Only for rent
- Only for mortgages
Show answer and explanation
Answer: No
The original obligor generally remains liable if the delegate fails.
7. Who must approve release of an original mortgage borrower?
- The lender
- The photographer
- The appraiser
- The buyer alone
Show answer and explanation
Answer: The lender
Buyer and seller cannot privately extinguish the creditor's rights.
8. What is taking property subject to a mortgage?
- Taking title with the lien but without necessarily assuming personal debt
- A lender novation
- A mortgage satisfaction
- A deed release
Show answer and explanation
Answer: Taking title with the lien but without necessarily assuming personal debt
The lender can still foreclose the collateral if the debt is unpaid.
9. Does a novation need a valid new contract?
- Yes
- No
- Only orally
- Only after default
Show answer and explanation
Answer: Yes
The substitute needs consideration, assent, capacity, legality, and required form.
10. What is the cleanest proof of discharge intent?
- An express signed release
- A broker's assumption
- One third-party payment
- An unsigned draft
Show answer and explanation
Answer: An express signed release
Direct language avoids relying on a disputed inference from conduct.
How should you study this area?
- Session
- Session 1
- Focus
- Build the substitution taxonomy
- Proof you are ready
- Classify 40 novation, assignment, delegation, assumption, subject-to, amendment, rescission, sublease, name correction, and entity-conversion scenarios.
- Session
- Session 2
- Focus
- Master the four elements
- Proof you are ready
- Audit 35 prior-valid-duty, all-party-agreement, new-valid-contract, extinguishment-intent, consideration, capacity, authority, writing, and signature facts.
- Session
- Session 3
- Focus
- Apply real estate party changes
- Proof you are ready
- Solve 35 buyer, seller, landlord, tenant, borrower, lender, guarantor, trustee, estate, LLC, assignee, and nominee substitutions.
- Session
- Session 4
- Focus
- Master debt and lease traps
- Proof you are ready
- Review 35 assumption, subject-to, due-on-sale, lender release, original borrower, lease assignment, sublease, rent acceptance, deposit, and landlord-release facts.
- Session
- Session 5
- Focus
- Coordinate the document set
- Proof you are ready
- Audit 30 note, mortgage, guaranty, lease, title, escrow, security deposit, accrued claim, survival, true-copy, record, and operational-update scenarios.
- Session
- Session 6
- Focus
- Run R-E-P-L-A-C-E
- Proof you are ready
- Analyze two substitution files, score at least 90 percent, and state the old duty, consents, new validity, discharge intent, security, and surviving claims aloud.
Do not count recognition as mastery. Close the notes and explain the rule, apply it to a new fact pattern, and identify why each distractor fails.
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Questions students ask about Novation: Illinois Real Estate Exam Guide
What is a novation in real estate?
A novation is a substituted contract in which a new party or new obligation replaces an existing one and the old obligation is extinguished. A buyer, tenant, borrower, seller, landlord, or other obligor can be replaced only if every required party agrees to the substitution and release. The defining result is discharge of the old duty, not merely transfer of performance.
What are the four elements of novation in Illinois?
The Illinois Supreme Court states four elements: a previous valid obligation, a subsequent agreement of all parties to a new contract, a valid new contract, and the parties' intention to extinguish the old contract. The party claiming discharge must prove the novation. If the original duty remains enforceable, the transaction is not a completed novation.
Can novation replace a party or an obligation?
Yes. A new buyer can replace an original buyer, a new tenant can replace an original tenant, a new debtor can replace an existing debtor, or a materially new obligation can replace an old one. The exact consent and writing requirements depend on the contract, land interest, creditor, lender, landlord, title documents, and governing law.
Is a novation the same as an assignment?
No. An assignment transfers contractual rights from assignor to assignee. It does not by itself extinguish the assignor's separate duties or release the original obligor. A novation substitutes a new contract, party, or duty with all required consent and discharges the old obligation. An assignment package can include a novation, but the release must be established rather than assumed.
Is a novation the same as delegation?
No. Delegation appoints another person to perform a duty. Unless the obligee agrees to a novation, the delegating party ordinarily remains responsible if the delegate fails. Novation releases the original obligor and makes the substitute obligation controlling. Exam questions often hide this difference inside a sale assignment, lease takeover, or management change.
Does a mortgage assumption automatically release the seller?
No. A buyer's assumption means the buyer agrees to become responsible under the assumption terms, but the original borrower is not automatically discharged. A lender-approved release or novation is needed to remove the original borrower's personal obligation. Taking title subject to a mortgage is different again because the buyer may not personally assume the debt at all.
Must every party consent to an Illinois novation?
Yes, every party whose rights or obligations are part of the substitution must agree to the new contract and intended discharge. That commonly includes the remaining obligee, the outgoing obligor, and the incoming obligor. A broker, closing agent, or one contracting party cannot release another party on someone else's behalf without actual authority.
Is intent to extinguish the old contract presumed?
No. Illinois Supreme Court authority says the intention to extinguish is not presumed. The party claiming discharge has the burden of proving novation by a preponderance of the evidence. A new agreement, changed payment source, or acceptance of performance can be evidence, but it does not establish discharge when the documents or conduct preserve the original liability.
Does a novation need consideration?
The substituted agreement must be a valid contract, so consideration or another legally sufficient basis is required. The new party's promise, the obligee's release of the original obligor, and reciprocal changes can supply the exchange. A paper that merely restates the same obligation without assent, value, authority, or intended discharge may fail as a novation.
Should a real estate novation be written?
Yes. A signed written agreement should identify the old contract, outgoing and incoming parties, substituted duties, consideration, effective date, assumption, express release, surviving rights, security, notices, escrow, and signatures. Land-contract writing rules, the original agreement, lender or landlord approval, and Illinois transaction-document rules can make form and authentication especially important.
Are these official PSI questions or legal advice?
No. The practice questions are original. The PSI Illinois outline, Illinois statutes and rules, and official Illinois court decisions were checked through August 1, 2026. This is exam education, not legal, contract, lending, landlord-tenant, title, tax, escrow, or transaction advice. A live substitution requires the original contract, restrictions, consent, authority, consideration, lender or landlord approval, security documents, release language, and qualified counsel.
Primary sources
- PSI Illinois Candidate Information Booklet effective June 24, 2026
- Illinois Courts, Pielet v. Pielet, 2012 IL 112064, stating the four novation elements, burden, and no-presumption rule
- Illinois Courts, official lease decision applying intent to extinguish and the preponderance burden
- Illinois Courts, published official decision defining novation as a substituted contract and addressing validity and consideration
- Illinois Courts, official real estate decision explaining assignment, identifiable rights, execution, and recording
- Illinois General Assembly, 740 ILCS 80/2 land-contract writing and signature requirement
- Illinois Joint Committee on Administrative Rules, 68 Ill. Adm. Code 1450.775 signed transaction-document alterations and true-copy delivery
- Illinois General Assembly, 5 ILCS 175/5-120 electronic signatures
The current official outline controls the tested scope. Statutes, regulations, and official agency materials control when a general study rule and a jurisdiction-specific rule differ.
Editorial status
Checked against primary sources
The Pass Illinois editorial team last checked this guide on August 1, 2026. Every practice question is an original study item, and the source links above let you verify the rules that support the lesson.