A homeowner with a mortgage sells his home to a purchaser who assumes the mortgage. The seller is released from liability. This is an example of:

In this scenario, the situation described is an example of novation. Novation occurs when an existing obligation is replaced by a new obligation, which includes the consent of all parties involved. In this case, when the homeowner sells the home and the purchaser assumes the mortgage, the original mortgage obligation is extinguished for the homeowner.

Novation is significant because it not only transfers the rights and responsibilities of the original contract to a new party, but it also relieves the original party (the seller) from any further liability under that contract. This means that the seller is no longer responsible for the mortgage once the purchaser assumes it, which aligns perfectly with the definition of novation.

In contrast, assignment typically refers to the transfer of benefits or obligations to another party without necessarily releasing the original party from liability. Subrogation involves substituting one party for another in relation to a claim, often seen in insurance claims. Subordination is a process where one debt is ranked below another in terms of claims on assets or income, but it does not relate to the transfer of obligations in the context described. Therefore, the correct understanding of this situation leads to the conclusion that it exemplifies novation.