How Can An Owelty Lien Ease Your Divorce?
By Elisa Reiter
If you start with a definition from the dictionary, you may walk away without realizing what a wonderful device an owelty lien can be. Definition of OWELTY • Law Dictionary • TheLaw.com.
Don’t walk away! Let’s say you and your partner are dissolving your marriage. Let’s extend that hypothetical; one of you wants to stay in your dream house, but the other wants out of the house, and all financial obligations tied to the house. How to accomplish those shared goals? A Special Warranty Deed with Owelty of Partition can help you accomplish your objectives.
An Owelty Lien is a lien that is asserted against the entirety of the property, to assure payment of a sum certain – in other words, the owelty lien helps to effectuate an equitable distribution of property by allowing one party to buy out the other party’s equity interest in the home. The owelty lien may be used as a means to equalize a property division – in other words, if one spouse wants to retain the home, but lacks the resources or liquidity to buy out their spouse’s fair share of the equity in the home, an owelty lien provides a mechanism for assuring an equitable partition. The lien is not restricted to that portion of the real property that is sufficient to pay off the amount due; instead, the owelty lien is placed on the entirety of the real property jointly owned by the spouses.
We don’t want The War of the Roses, nor to have you take a chainsaw to that prized home. When we cannot implement an in-kind distribution (you take a sofa, your spouse takes the movie-seats), the owelty lien lets us secure a pecuniary amount to be paid by one spouse to the other. Typically, we would set up terms for refinancing the existing mortgage within a certain time frame post- divorce. I push my clients to obtain preapproval of such a new loan. Why? To avoid disappointment. To assure financial responsibility. The party being bought out wants reassurance that the party retaining the home will qualify for a new loan in order to refinance the mortgage – which was initially entered into by both spouses – and the party who wants that beautiful home needs to take responsibility for refinancing the loan into a loan for which they assume sole responsibility in the timetable set by agreement and codified in their Divorce Decree and collateral documents.
Get pre-approved for your equity buyout with Richard Woodward, Certified Divorce Lending Professional
Often, title companies expect to see not only a Special Warranty Deed with Owelty of Partition, but a Deed of Trust to Secure Owelty of Partition as well. The former is for the party retaining the home; the latter benefits the party who is receiving financial compensation for walking away from the home.
The Deeds must be duly filed in Deed Records in the county in which the property is located. This forms a chain of title, and evidence of the transfers. Here in Texas, an Owelty Lien allows divorcing spouses to access more than 80% of their home’s current equity, up to 95%, while respecting applicable Federal law (B5-4.1-02, Texas Section 50(a)(6) Loan Eligibility (12/16/2020) (fanniemae.com)). With the owelty lien, a divorcing couple – or better said, the spouse who is the post-divorce borrower – to borrow up to 95% of the equity in the home. Better terms are available through a regular refinance, rather than through the caps levied under Texas Home Equity loans.
As T.S. Eliot wrote: “Home is where one starts from…”