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Novation vs Assignments | Real Estate Exam Prep Videos - YouTube
Channel: The Real Estate Classroom
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in today's real estate exam prep video
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we're going to focus in on two key real
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estate concepts that really really
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confuse students as they're studying for
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their real estate exam
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novation
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and assignments we're going to discuss
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them right now
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hey everyone if we're meeting for the
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first time my name is paul vachesky and
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welcome to the real estate classroom
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youtube channel where my mission is very
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simple to help you pass your real estate
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exam the first time all right so i want
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to talk about two key concepts that
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quite frankly really confuse the hell
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out of students as they're studying they
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are novation
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and assignments both have to deal with
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contracts so what i'm going to do is
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we're going to cover the the the
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definitions of each and then i'm gonna
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give you an example maybe it'll clarify
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the application part here so what is
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novation
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novation is substituting a new contract
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for a previously agreed
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to contract
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an assignment
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is where
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one party assigns their rights to a
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contract to someone else and there are a
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couple of key points i have them on your
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screen here assignments only transfer a
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party's rights under the contract where
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novation transfers both parties rights
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to the contract and their
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obligations and with novation
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all parties have to agree
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uh to the novation
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all right so paul what does all that
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mean well let me give you an example
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let's say that uh you are a tenant and i
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am the landlord and we sign a lease
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agreement
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now let's discuss assignment first
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let's say you've lived in my apartment
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six months of a one-year lease
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and you decide that you want to move out
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but you have a friend that wants to move
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in and basically take over
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uh your lease agreement so instead of
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signing or having the new tenant your
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friend sign a new lease agreement we
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just transfer all the rights and
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obligations from
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you
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to your friend and then your friend is
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going to carry out the remaining terms
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of your lease contract now
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when that assignment
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is signed
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um
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you're off the hook because the
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the your friend who assigned your lease
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agreement they take over all the
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responsibilities and the benefits and
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rights of that original lease contract
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now
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as i said in the key point assignments
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only transfer one party's rights
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and the other thing is as it's inferred
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in point number two is with assignments
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me as the landlord i don't have any
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party to it unless my lease contract
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specifically says that assignments or
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subletting is strictly prohibited
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without consent of the landlord you're
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free to do it so if this our lease
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agreement didn't have that prohibition
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in in the lease contract you could go
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ahead and assign
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your rights and obligations in our
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lease agreement to your friend and
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there's nothing i can do about it right
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one part of you assigning your rights
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and obligations over to your friend and
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then your friend is obligated upon
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signing the assignment
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to fulfill the terms that's what an
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assignment is now let's talk about
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novation
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same scenario you and i have a lease
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contract you're six months into a lease
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and you're moving out and you have a
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friend that wants to move in
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so instead of doing an assignment of the
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lease
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me and your uh your
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friend
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remember we you and i we have a lease
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contract in place totally enforceable
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so what we're going to do is me and your
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friend we're going to sign a new lease
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agreement so there's going to be a new
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contract a new lease contract that's
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going to replace the old one between me
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and you
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now typically what happens is the the
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terms aren't renegotiated it's just
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going to be all the same terms that you
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and i had in our lease agreement
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those same terms and conditions are
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going to be put into the new lease
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contract with your friend
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and me as the landlord your friend is
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the new tenant we sign it
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and that is novation we are substituting
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a new contract from for a previously
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agreed to contract there's also one
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other function under novation
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i gave you an example of your friend
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that's going to take over your lease
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let's say for example you and i have a
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lease agreement
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and it's a
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it's a it's a one-year lease agreement
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we're six months into it but we want to
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change some terms
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to that lease contract well remember we
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have a currently enforceable lease
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contract you and i can draft up a new
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contract changing the terms
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that is also considered novation so we
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create a new contract and it's going to
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substitute this old contract
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and once the new contract is signed the
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old contract becomes void
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so that is the difference between
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novation and assignment it can be very
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confusing i know
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now if you want more details on
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assignments more specific in-depth study
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of it i'm going to leave a link right up
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here in the upper right hand corner to a
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video that i did i highly suggest that
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you
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check that out if you have not
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subscribed click to the little circle to
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my left and comments and questions down
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below that would be awesome see y'all in
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the next video
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