Austin Owelty Liens

What is an “owelty”? An owelty lien is a tool property owners utilize to split property equity. Here are some helpful answers to frequently asked questions (FAQs): 

Owelty means equality. Typically, it 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 interest as collateral for a loan to acquire the property. Typical examples are divorces, probates, and the division of co-owned assets by people who are not partners.

In simple terms, the homeowners can use the equity they have in the home to assist in dividing up their property. This action is commonly utilized in divorces or “buying out” one party’s interest in a property.

How does it work?

Tom and Katie are going through a divorce. They own a home together with a mortgage. Their home is worth $500,000, and Katie and Tom owe $300,000. Let’s assume they split the equity 50/50 (or $100,000 each). Their divorce decree must specify the owelty, and they must have it recorded with relevant authorities. Katie would then refinance the property at $400,000: the $300,000 owed on the mortgage and Tom’s $100,000 owelty lien.

The result is that Tom gets his $100,000, and Katie is the complete owner of the home. Tom is no longer on the note nor the deed.

Does it have to be a divorce situation?

No. Any property owner can use an owelty deed to partition the equity. Example: two sisters bought a condo together. Sister #1 moved away and wants her equity out. They agree with Sister #1’s share. 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.

Do I have to do a “cash out” refinance or Texas Home Equity Loan to get the money/equity?

No. In 1995, the Texas legislature passed a resolution to amend the Texas Constitution to specifically designate an owelty of partition as one of the permitted encumbrances on a Texas homestead. The owelty allows the parties to recoup their equity up to 95% of the property’s value. With it, the parties could cash in on equity up to 80% of the property’s value under Texas Equity laws.

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