An owelty lien is a tool to utilize when the equity of a home needs to be split. Here are some helpful answers to frequently asked questions (FAQs) regarding an owelty:
Q: What is an “owelty”?
A: Simply defined, owelty means equality. Typically, owelty of partition is a vehicle used to allow one co-owner of property to buy the interest of the other co-owners while using 100% of the interests as collateral for a loan to acquire the property. Common examples are divorces, probates and division of co-owned assets by people who are not partners.
Q: Can you put this in layman’s terms?
A: The owners of the home can use the equity they have in the home to assist in dividing up their property. This action is commonly utilized in divorces or in “buying out” one party’s interest in a property.
Q: How would an owelty lien work?
A: Here’s an example: Tom and Katie are going through a divorce. They own a home together with a mortgage. Their home is valued at $500,000 and Katie and Tom currently owe $300,000. Let’s assume they are splitting the equity 50/50 (or $100,000 each). Their divorce decree must specify the owelty and the owelty lien must be recorded. Katie would then refinance the property at $400,000: the $300,000 owed on the mortgage in addition to Tom’s $100,000 owelty lien. The end result is Tom gets his $100,000 and Katie is the full owner of the home. Tom is no longer on the note nor the deed.
Q: Does it have to be a divorce situation?
A: No. An owelty deed can be used to partition the interest of any owner. Example: two sisters bought a condo together. Sister #1 moved away and wants her equity out. They come to an agreement of Sister #1’s owelty. They record the owelty and we follow the same process as the previous question with Sister #2 getting the condo and Sister #1 getting her cash.
Q: Do I have to do a “cash out” refinance or Texas Home Equity Loan to get the money/equity?
A: No. 1995, the Texas Constitution was amended to specifically designate an owelty of partition as one of the permitted encumbrances on a Texas homestead. Without an owelty, the parties would be limited to only cashing in on equity up to 80% of the value of the property under Texas Equity laws. The owelty allows the parties to recoup their equity up to 95% of the property’s value.
Contact Mortgage Broker Joel Richardson
If you would like to learn more or explore how an owelty might work for you, contact Joel Richardson online or by phone at (512) 637-0932.