Owelty Liens

Owelty liens are a type of lien that allows the owner of a home to use the existing equity in their home to assist in dividing property in the case of a divorce or inheritance. You can think of it as one party “buying out” the interest in a property from the second party. The party giving up their interest obtains an Owelty Lien via the divorce agreement (it has to be written as such in the actual decree) or via warranty deeds from each heir relinquishing ownership in exchange for an equity payout. When the party retaining interest in the home refinances into their name solely, the other party is paid cash from that lien. It allows both parties to benefit from their interest in the property without having to sell or do a cash out refinance (which in Texas will place them in the A6 category forever, plus they are limited to 80% of the home value). Owelty liens allow the cash out up to 95%. At closing, the funds are wired directly to the party giving up their interest in exchange for cash.

Let’s say Bob and Jane are getting divorced and own a home valued at $400,000 and they owe $200,000. In their decree, Jane is awarded $100,000. Bob would refinance the $200,000 and add on $100,000 for a total loan amount of $300,000. At closing, Jane would be paid out her $100,000 and the total loan of $300,000 would be in Bob’s name only. Make sense?

In a second example, Susan, Sarah, and Sally have inherited their mother’s home after she passed away. Sarah would like to assume full ownership of the property and buy out her sisters. With an Owelty Lien, Sarah can access the equity from her mother’s free and clear property to pay each sibling their inherited interest in cash, and assume sole ownership of the home.