Divorce, a distressing and life-altering event, presents numerous challenges, especially when it involves the division of a jointly-owned property in Texas. During this emotionally difficult process, the guidance of an experienced mortgage professional can be invaluable.
Hurst Lending is a company specializing in divorce loans, with a deep understanding of the unique challenges associated with dividing property in Texas. My name is Scott Bialek, co-founder of Hurst Lending, and I’m not only a mortgage banker but also a licensed Texas attorney. Our business is designed to help clients navigate the complexities of mortgage issues related to divorce while adhering to the property directives outlined in the divorce decree.
In Texas divorces, the family home is often the largest asset that must be divided. For example, consider a couple with a home valued at $500,000, and a mortgage balance of $300,000. The divorce decree will determine the division of the $200,000 in equity and identify which spouse is responsible for the remaining home loan (mortgage) liability. If both spouses signed the original loan documents, they are both accountable and obligated until the loan is fully paid.
There are, however, options for removing one spouse’s liability from a jointly obligated mortgage. The most common method is refinancing the mortgage, typically employed when one spouse retains the property while the other is removed from the loan obligation. In the example above, the spouse retaining the property could refinance the mortgage for $400,000, with $100,000 going to the departing spouse as their share of the equity. An Owelty Lien can be created as part of the divorce decree to ensure the departing spouse receives their share of the home’s equity. This type of lien attaches to the property on behalf of the departing spouse, granting them the right to collect their share of the equity when the property is refinanced or sold.
A significant advantage of an Owelty Lien in Texas is that it enables the spouse retaining the home to borrow up to 95% of the home’s value when refinancing. In our example, the retaining spouse could refinance up to $475,000, which enables the spouse who keeps the property can more easily compensate the departing spouse without the loan being subject to Texas Equity Laws. Without this exception, the borrower would be limited to borrowing only 80% of the home’s value (i.e., $400,000) under Texas’ stringent home equity laws and this may not be enough money to fully compense the departing spouse for their share of the marital estate.
Selling the home is another option for removing liability. After settling existing liens on the property, the parties can divide the proceeds. Assuming a mortgage is also an option, where one spouse assumes the current loan obligation in an assumable loan (mainly applicable to VA loans). If you have a VA loan, contact your current lender to determine if the loan is assumable. Note that sufficient credit and income are required for qualification.
Below are some frequently asked questions about Owelty Liens in Texas:
Q: What is an owelty lien?
A: An owelty lien is a legal mechanism used to divide property in a divorce case in Texas. It allows one spouse to retain possession of a property, while the other spouse receives a lien on the property for a portion of its value. The lien ensures that the non-possessing spouse receives their fair share of the property’s value, without requiring the sale of the property.
Q: How is the amount of the owelty lien determined?
A: The amount of the owelty lien is typically determined by the court during the divorce proceedings. The court will consider a variety of factors, including the value of the property, the amount of any outstanding mortgage or other debts secured by the property, and the financial needs of both spouses.
Q: Can an owelty lien be used for any type of property?
A: An owelty lien can be used for any type of real property, such as a house or land. It cannot be used for personal property, such as vehicles or furniture.
Q: Who pays the mortgage on the property subject to an owelty lien?
A: The spouse who retains possession of the property is responsible for paying the mortgage and any other expenses associated with the property.
Q: How is an owelty lien enforced?
A: If the spouse who retains possession of the property fails to pay the owelty lien as required, the other spouse can seek enforcement through the court system.
Q: When is the owelty lien paid off?
A: An owelty lien must be paid off when the spouse who kept the property refinances or sells the home.
Q: Can an owelty lien be modified after the divorce is finalized?
A: In some cases, an owelty lien can be modified after the divorce is finalized. However, any modification must be approved by the court and may require the consent of both parties.
Q: How does an owelty lien affect taxes?
A: The owelty lien may have tax implications for both parties. The spouse who retains possession of the property may be able to deduct the interest paid on the owelty lien on their income taxes. The spouse who receives the owelty lien may need to pay taxes on the income received.
Q: Do I need an attorney to use an owelty lien in my divorce?
A: It is highly recommended to seek the guidance of an experienced family law attorney in Texas when using an owelty lien in a divorce. An attorney can help you understand the legal implications and requirements of using an owelty lien and can assist you with the necessary legal filings and court proceedings.
Q: Are there any limitations on using an Owelty Lien?
A: While an Owelty Lien provides a flexible solution for property division during a divorce, it may not be suitable for all situations. If the spouse retaining the property does not have sufficient income or credit to qualify for refinancing, or if the property has significantly decreased in value, using an Owelty Lien may not be feasible.
Q: Can an Owelty Lien be used in conjunction with other property division methods?
A: Yes, an Owelty Lien can be used in combination with other property division methods, such as selling the home or assuming the mortgage. For example, if the couple decides to sell the property and divide the proceeds, the Owelty Lien can still be used to secure the departing spouse’s share of the equity until the sale is completed.
Q: Can the amount of an Owelty Lien be negotiated between the spouses?
A: The amount of an Owelty Lien can be negotiated between the spouses as part of their overall property settlement agreement. The spouses may agree on a specific amount or percentage of the home’s equity to be secured by the lien, subject to the court’s approval.
Q: What if the spouse retaining the property wants to sell it later?
A: If the spouse retaining the property decides to sell it later, the Owelty Lien must be paid off from the proceeds of the sale. The departing spouse will receive their share of the equity, as secured by the lien, before any remaining proceeds are distributed.
In conclusion, divorce can be an arduous and emotional journey, particularly when it involves dividing property like the family home. At Hurst Lending, we specialize in divorce loans and can help Texas residents navigate the obstacles associated with property division during divorce. Our co-founder, Scott Bialek, is a licensed Texas attorney and skilled mortgage banker who understands the unique challenges of mortgage issues related to divorce. We can assist you in navigating the refinancing process, including providing advice about Owelty Liens. Owelty Liens allow the spouse retaining the property to execute a cash-out refinance at 95% of the value, bypassing Texas equity laws that would otherwise limit the cash-out amount to 80% of the property value. Contact us today to discover how we can support you during this challenging time.
- Texas Family Code: Owelty of Partition This is the section of the Texas Family Code that directly addresses Owelty Liens, referred to in the statute as “Owelty of Partition.” This is the legal basis for the use of Owelty Liens in Texas divorces.
- https://hurstlending.com/conventional-loans/owelty-lien/ Owelty loan options from Hurst Lending.
In addition to being one of the founders of Hurst Lending, I am also an attorney and real estate investor. I have a portfolio of residential and commercial properties. I have been helping our customers buy, sell, and refinance their homes since 2000. Our suite of industry-leading offers helps solve many common situations faced by homeowners and real estate investors. Have you ever experienced the frustration of trying to buy before you sell; Losing your dream home in a bidding war; Trying to obtain a No-Seasoning Cash-out loan; Being unable to get a mortgage because your new or old house needs modest repairs; or simply because you prefer using our funds to close quickly without having to liquidate other investments? Our Industry-leading suite of short-term loans solves these issues. We also offer a suite of real estate investor loan products and a full suite of conventional, VA, FHA, construction and traditional home loans.
Please feel free to contact me directly if I can help provide a loan for your next purchase or refinance, or even if you just want advice on how to get started or expand your real estate investing activities.
Scott E. Bialek
Co-Founder, Hurst Lending
*Disclaimer: This article is intended for informational purposes only and does not constitute legal, financial, or professional advice. Consult with a licensed professional before making any financial or real estate decisions.