An individual obtains a loan from a bank to purchase a house and gives the bank a mortgage on the house. The mortgage is not recorded. Three years later, the individual sells the house to a third party, who then obtains a new loan from the bank with the same terms and the bank agrees to release the individual’s obligations. Five years later, the borrower fails to pay and the bank sues the individual for the unpaid balance. Which statement is correct?

• A. The individual remains liable, since the mortgage was not recorded.
• B. The individual is not liable due to novation with the third party.
• C. The bank can sue the individual because the lack of recording has no effect on the bank’s rights.
• D. The novation is invalid due to lack of recording.

Answer: (B)