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. 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 law. In this circumstance, the Parties could only cash in on equity under $160,000 and as they owe more than that, there is no possibility of funds being pulled out of the developed equity. An Owelty allows the parties to cash in on up to 95% of the equity on the property. If James were moving out, he would obtain a lien against the property through the divorce decree worth his amount of the equity, or $10,000, to secure his interest.
Jill would then refinance the property at $190,000, what is owed on the old mortgage in addition to the $10,000 lien, utilizing the equity available up to 95% of the value of the property, which would include paying James $10,000. The end result is James has his $10,000 and Jill is the full owner of the property they once shared.
Expert content contributed by Timothy Zorka