When is an Owelty Lien used, and why can it be a better option than a Texas Equity or Texas Cashout Refinance? First, here is a couple definitions from different resources, so you can “get your hooks in” on exactly what an Owelty is? For further reference in this Blog, Texas Equity, Texas Cashout, Texas Home Equity, and Texas 50(a)(6), are all terms that can be used synonymously in this Blog for generalization purposes for the specific purpose of this Blog. There are variations of Texas Equity loans, but determination between those variations are not applicable to the specific focus here. Lawyers.com defines “Owelty”- Noun[Anglo-French oelté equality, from Latin aequalitat- aequalitas]: a lien created or a pecuniary sum paid by order of the court to effect an equitable partition of property (as in divorce) when such a partition in kind would be impossible, impracticable, or prejudicial to one of the parties. For the laymen, that means, when parties to a divorce own a home that in which there is substantial equity, one party will often be awarded the home as their separate property and the party receiving the home in the divorce decree will be ordered to pay a cash sum to the other spouse to compensate for that spouse’s community interest in the property.
When there are other alternatives to meet a person’s needs in a loan that bring a similar outcome as a Home Equity or Texas Cashout Refinance, many times those are taken. The reason can be for various reasons. To avoid having to delve in too deep about all the specific unique laws of the Texas Equity, I’ll try to make a general statement that could be elaborated upon in a number of ways. Once a Texas Equity, or the legal term for it, Texas 50(a)(6), always a Texas Equity…this means, if you refinance your home or current home loan into a Texas Cashout/Texas Home Equity, any refinance you make on that loan from then on out must also fall under the Texas Cashout loan guidelines. Texas Cashout guidelines are more restrictive, and many times lender charge a bit higher interest rate for them. To see a good definition of a Texas Cashout or Texas 50 (a)(6), click here. Lastly, the state of Texas will only let you have a loan to value on your home of up to 80% when you have a Texas Home Equity, and that means you lose the opportunity to use the remaining equity if needed…contrary to many state in the U.S.
In an Owelty Lien, you can get cash/equity out of your home to pay off a spouse in the process of a divorce. You can go over an above the Texas Cashout limit of 80%, and you get the best of the best market interest rates as if you were doing a regular rate and term refinance. In addition, you can Quit Claim Deed the spouse that is moving out of the residence from the property to remove their interest in that property and remove their influence or rights on the loan attached to that property if they were on the loan.