Splitting equity in a home after divorce or inheritance can be complicated in Texas without a knowledgeable team to support you or using a Texas Owelty lien. If you’re going through a Texas divorce or recently inherited Texas real estate, you’re likely dealing with a lot of emotions, often times both positive and negative. The financial aspects of these situations can be difficult or challenging in Texas due to our strong homestead laws. That’s where we can help. At Service First Mortgage, we can help you with the Texas mortgage and Texas real estate issues you’ll encounter, specifically how to distribute home equity in a fair way that saves you money and maximizes your cash. Very few lenders understand how this works, so it’s important to work with a Texas expert who has experience with these situations. A Texas Owelty lien is a type of lien that allows homeowners to divide the equity in a property. This strategy is commonly used to “buy out” or “cash out” one person’s interest in a home, most commonly in the cases of inheritance or divorce.
The party giving up their interest in the home obtains this specific type of Texas Owelty lien against the property. The Texas Owelty lien should be drafted by an attorney and filed at the courthouse in the court records. When the party retaining interest in the house refinances or sells the home, the other party is paid the value of their Texas Owelty lien. This solution allows one person to obtain their full interest in the home, removes the other party from the mortgage (thus ending their responsibility for the mortgage), and provides the exiting party with cash. In addition, it allows for maximizing the equity in a home while paying less in fees than a traditional Texas cash out refinance would. Read more about Divorce and Your Mortgage Here.
Frequently Asked Question: FAQ
Q: Can you put this in simple terms? A: The owners of the home can use the equity they have in the home to assist in dividing up their assets. This action is commonly utilized in cases of divorce or inheritance where one party is “buying out” another party’s interest in a property while simultaneously removing them from the mortgage, while getting a lower interest rate and saving on fees.
Q: Can you give me an example? Example #1: Amber and Mike are going through a divorce. They own a home together with a mortgage. Their home is valued at $400,000 and the couple currently owes $360,000. Let’s assume they are splitting the equity 50/50 ($20,000 each). In their divorce decree, they specify that Mike has an Texas Owelty lien in the amount of $20,000 and the lien gets recorded at the courthouse. Amber would then refinance the property at $380,000 (95% of the property’s value). The $360,000 owed on the current mortgage and Mike’s $20,000 Texas Owelty lien. The end result is Mike gets his $20,000 and Amber is the full owner of the home. Mike is no longer on the mortgage nor the deed.
Example #2: Jim, John and Jeremy inherited their father’s home after he passes away. Jim would like to assume full ownership of the property and buy out his brothers. With a Texas Owelty lien, Jim can access the equity from his father’s home to pay each sibling their inherited interest in cash, while assuming sole ownership of the property.
Q: Why can’t I do a “cash out” refinance or Texas Home Equity Loan to get the money/equity? A: Without a Texas Owelty lien, the parties would be limited to only cashing in on equity up to 80% of the value of the property under Texas Home Equity laws. This specific lien allows the parties to recoup their equity up to 95% of the property’s value. This also allows the refinancing party to obtain a regular refinance. That is very important because it affords the borrower lower rates, lower fees and better terms.
Warning! All parties need to plan and pre-qualify for a refinance if they wish to retain the property. Many times one party cannot qualify for the mortgage on their own. Without proper planning, the result could be devastating for all parties. All party’s credit could be damaged because the retaining party cannot refinance and the equity cannot be divided without a sale. In the case of divorce, these steps need to be completed BEFORE the divorce is filed and should be detailed in the divorce decree.
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