owelty lien
HOW OWELTY LIENS WORK
IN A DIVORCE
YOU'VE DECIDED TO KEEP THE HOME
AND BUY-OUT YOUR SPOUSE
When one spouse wants to remain in the home, and the other spouse has rights to part of the equity, the best option is an Owelty Lien. It is a legal document that must be used to protect the spouse that is leaving the house in order for them to get their part of the equity.
Four Items Need To Be Done To Properly Protect the Spouse Leaving The Home:
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The Owelty Lien must be mentioned in your divorce decree.
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The Owelty Lien must be filed in the county courthouse in which the property is located.
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A time frame must be mentioned when the equity is to be paid.
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A time frame when the home will be sold if the deadline to pay the equity is not met.
A common time frame for the equity to be paid is 60 days, but can be longer if the spouse staying needs more time to qualify for the refinance. This is one reason to begin planning BEFORE the divorce decree is final or going to mediation to make sure the spouse keeping the home can qualify and confirm to see how long it should take to pay off the Owelty Lien.
TWO REASONS A CASH-OUT REFINANCE IS
NOT YOUR BEST OPTION
1. A Cash-Out Refinance limits parties to only pull out up to 80% of the value of the property without violating the Texas A6 law under Texas Equity laws. An Owelty Lien allows 95% of the value to be refinanced.
2. Further, there are stipulations once a ‘Cash-Out Refi’ has been done as Texas law allows only one A6 loan on the property at the same time.
EXAMPLE: Steve and Paula are going through a divorce. Their home is valued at $450,000, and the couple currently owes $350,000, leaving $100,000 in equity. Assuming they are splitting the equity 50/50 ($50,000 each) Paula would need to refinance the mortgage balance of $350,000 plus $50,000 to Steve, making it a total refinance of $400,000 needed.
1. Owelty Lien allows you up to 95% of the home's value:
$450,000 x 95% = $427,500 (this gives you and extra $27,500).
Steve receives his $50,000 (50% of the equity).
2. Cash-Out Refinance allows you up to 80% of the home’s value:
$450,000 x 80% = $360,000.
Steve would ONLY receive $10,000 ($40,000 short).
Summary: Using the Owelty Lien, Steve gets his portion of the equity and is removed from the liability of the mortgage and Paula becomes the sole owner of the home.
HOW DO I QUALIFY TO REFINANCE
WITH AN OWELTY LIEN?
Many times one spouse can not qualify for the refinance on their own. Without proper planning BEFORE mediation or the divorce is finalized, the result could be devastating for both. Both spouses' credit could be ruined because the retaining spouse can not refinance and the equity can not be divided without a sale.
There is no cost to apply for a refinance utilizing an Owelty Lien. Not all Loan Officers and Attorneys know about Owelty Liens so make sure you hire one that does.
CONTACT US TODAY
469-556-1185
To talk about your situation and your options if you feel an Owelty Lien would be beneficial and find out the True Value of Your Home. Even before the divorce proceedings begin, we can evaluate your financial situation, and uncover any unknowns that could stop you from refinancing your property.
Our Certified Divorce Lending Professionnals (CDLP®) are standing by to help you determine your best options. Call 469-556-1185 or if you have a question for Geni or an Attorney fill out our Online Referral Rquest Form.
