Texas is a common law state and if you are married and own Real Estate that is considered your primary residence, and you likely homesteaded this property, both spouses have equal rights to the equity in the home. Equity is the value of the home minus the mortgage loan amount. The Owelty Lien is designed to give each spouse what is owed to them per what the divorce decree states. As an experienced Mortgage Advisor for 9 years, I have found that the Owelty Lien is one of the best tools in finance designed to help make the splitting of assets in regards to Real Estate, much easier. It many times is the last hurdle in a divorce and can be a very emotional transaction that requires attention to detail, and I’ve learned that being a good listener and being empathetic helps the succession be maximized.
What is the difference between an Owelty Lien Refinance and a Texas Cashout Refinance?
Lets just say this plainly, the Owelty Refinance is hand over fist the much better option than a Texas Cashout when settling the Real Estate variables during the divorce, and there are a number of reasons why.
Texas State Law says, once a cashout loan, always a cashout loan. This means that once you refinance your primary residence and take cash out of it, that mortgage is “flagged” as a Texas Cashout mortgage or the legal term is, Texas a(6). There are a number of reasons why you would prefer that your mortgage not be a Texas a(6) mortgage.
1) All banks, lenders, and investors bump your interest rate a little higher when dealing with the Texas a(6)…this means that if you go to refinance your house a couple years down the road after you have gotten a Texas a(6), even if you are just refinancing to lower your rate/payment and taking no cash from the equity, you still get “hit” with a little higher rate
2) Texas law says that you can not take more than 80% of the equity in your home for cash…this means you are limited to an 80% loan to value on your mortgage. If you bought your home 5 years ago and only put down 5%, you likely do not have equity to the extent you could use a cashout, because you have to have more than 20% equity to start taking cashout…THE OWELTY LIEN FOLLOWS REGULAR LENDING GUIDELINES AND YOU WOULD BE ABLE TO REFINANCE IN AN OWELTY.
3) The transaction for a Texas a(6) is much more turbulent than an Owelty. There are waiting periods set into the a(6) and special documentation that doesn’t typically get viewed and included in other loans that are included in the a(6) that when not administered correctly can post pone the closing…better to use a loan officer with extensive Texas lending history rather than an online or TV commercialized lender where they are licensed in Texas but office in another state.
If you are in need of an Owelty Lien to finish the split of assets in your divorce, contact me, the Frisco Mortgage Planner. No matter where you are in Texas, I can handle your process with years of experience under my belt and give you the confidence you need at this tough transitional time in your life. I’ll be your owelty lien specialist, and I promise that you will be glad in the end.
John Cannata says
Not many homeowners know about this option, and whats even more sad is that many broker/bankers are not familiar enough with it in order to offer the option.
This is solid information Brad! Proof why you are a good selection as a loan officer in Frisco Texas.
Pat Huffstutler says
How does it work if the home is paid off and both have been living in the house for 38 years?
admin says
Nothing is different. The spouse is treated like a lien on the property, so imagine the home is NOT paid off, but you have a spouse lien against it. We pay off the spouse and you now have a traditional mortgage on the home. If you have any questions, or would like me to lead you through this process as your loan officer, feel free to call me at 469-450-2723 or email me at brad@yourmortgageguyforlife.com
Brad Lynch
Chad Martin says
What are the current interest rate for these type loans?
admin says
Rates on the owelty are the same as if you were doing a regular refinance. 15yr, 10yr, or 30yr fixed loan.
I’ve got a minute if you have questions…469-450-2723
Becky Silvers says
I think I love this option however, can this “refinance” happen if spouse B is not on title? Spouse A purchased home 2 yrs prior to marriage.
Brad Lynch says
Becky, I’m sorry I’m just getting back to you on this. I switched emails and forgot to update it on my site here and I didn’t get the notification. I am NOT a licensed attorney, and I can not confidently tell you what the laws says exactly. I can share with you an example and what I, as a non-license attorney would think.
If you are in Texas, and for example, a man buys a home previous to getting married, so the original title has nobody’s name on it but his, and then he marries and moves in his wife, that house might become common law. From that point, upon divorce, I believe it works the same way as if they bought it together. This is from the mortgage side of things, that is all. Hope this helps.
Brad Lynch
Stephanie says
I have a question and would like further information on how this impacts my credit if we do this so he has the house to buy me out.
Brad Lynch says
Stephanie,
Thanks for your email. I went ahead and replied to you directly by email, but to reiterate what I wrote in the email, if I’m understanding the situation properly, it would not have any negative reflection on your credit for your husband to do a divorce mortgage refinance using an owelty refinance alone. Typically when you have a paid off mortgage, which is what would show up on your credit if the current home has a loan on it with your name on it, it is a positive thing for your credit. Hope this helps!
Thanks,
Brad Lynch
YMGFL
Patty says
Hello
What are the tax implications for the person who will be receiving the funds of the paid off lien which was placed by the Owelty Agreement? My sister and I used an Owelty Agreement for a property that was given to us at my mother’s passing. To guarantee that I received my portion an Owelty Agreement was created. She is now refinancing the lien to pay me off and she would be sole owner.
Brad Lynch says
Patty,
I’m sorry, that is a CPA question. There may or may not be tax implications. I’m sorry I can’t answer this. Best of luck to you though.