Divorce is a challenging and incredibly stressful process, particularly when it comes to dividing assets like the family home. As a Certified Divorce Lending Professional, I have the expertise to guide you through this complex situation, especially with the use of an Owelty lien, which is a powerful tool in Texas for dividing home equity fairly between spouses. I have helped hundreds of people through this process, even when their bank told them it was not possible.

Understanding the Owelty Lien

An Owelty lien is a type of lien that allows homeowners to divide the equity in their property during a divorce. This lien is created when one spouse buys out the other’s interest in the home, ensuring both parties receive their fair share of the property’s value. The lien is recorded in the divorce decree and must be satisfied before any proceeds from a future sale or refinance are distributed. Many times, my team will work with our closing title attorney to prepare the actual paperwork as detailed in the divorce decree. Not all divorce attorneys will prepare the Owelty lien for the final divorce decree.

Texas Laws regarding home equity

Texas has very specific laws regarding pulling equity from one’s homestead primary residence. This is what confuses most banks and credit unions because they are not familiar with or don’t have the expertise that I have regarding equity division in Texas. Texas law states that a homeowner may not withdraw equity from their homestead that exceeds 80% of the home’s value. That can be a problem for many divorcing couples because they may not have enough equity to satisfy the terms of the divorce.

I can help my clients withdraw up to 95% of the homes equity by using the Owelty lien. In addition, lenders charge higher rates for cashout transactions. My clients don’t have to pay those higher rates because we handle the transaction differently.

Benefits of an Owelty Lien

1. Equitable Division: The Owelty lien ensures a fair and equitable division of property, allowing one spouse to remain in the home while compensating the other, even up to 95% of the appraised value in Texas.
2. Flexibility: It provides the flexibility for one spouse to keep the family home, which can be beneficial for maintaining stability, especially for children.
3. Financial Clarity: By clearly defining financial responsibilities and equity division, the Owelty lien minimizes future disputes and financial surprises.

How the Owelty Lien Works

Let’s consider an example: John and Mary are divorcing, and their home is valued at $300,000 with a mortgage balance of $240,000. They have $60,000 in equity. John wishes to keep the home and buy out Mary’s $30,000 share of the equity. Through an Owelty lien, John can refinance the mortgage to a new loan amount of $270,000, 90% of the home’s value, which covers the existing mortgage and Mary’s share of the equity. This allows John to retain ownership of the home while ensuring Mary receives her equitable share.

Importance of Professional Guidance

It is crucial to involve a mortgage professional early in the divorce process, before the actual divorce decree is signed. This ensures that all parties understand the financial implications and that the divorce decree is structured correctly to accommodate the Owelty lien. Clients that involve me early will know for sure that they can complete the equity division and not be found in contempt of their decree.

I preapprove my clients for the equity division. Often, I have clients that come to me after the fact and discover they cannot qualify for the equity buyout. They would then have to sell the home or incur additional attorney fees to try and renegotiate the decree.

Many divorcing couples and their attorneys mistakenly consider a cash-out refinance, which is often not feasible under Texas law. Instead, an Owelty lien provides a more effective solution, allowing refinancing up to 95% of the home’s value, which is significantly higher than the typical 80% allowed under Texas cash-out refinance rules.

Conclusion

Navigating the financial complexities of divorce doesn’t have to be overwhelming. With over 23 years of experience and specialized training in divorce lending, my team and I are here to provide the expert guidance you need. Visit our Owelty Lien page to learn more and see how we can help you through this challenging time.