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Written by
Noel Cookman

Explaining The Divorce Buyout From a Different Perspective

Published On 
January 10, 2019

I try to explain divorce-related mortgage financing in a variety of ways. Sometimes, just saying something from a different perspective helps to break through the fogginess on a matter. I don’t talk or write like an attorney. Rather, I have to make deals work in the realm of mortgage finance. Yet, I still must interact and live within the legalities of divorce law, real estate law, and finance law – as well as industry standards in all of those categories.

So, here goes one of those “from a different perspective” attempts to explain the DIVORCE BUYOUT. In Texas, we deal with the Owelty. Texas is the only state that has an actual lien on property (by design or default) for a divorce buyout. In other words, one may or may not use the word “Owelty” when citing a buyout; but, if an amount of percentage of “equity” is tied to a spouse’s interest in a marital residence, the Owelty of Encumbrance has been created. That’s what I mean by “design or default.” You can intend it or not intend it – it is created when that language is used in a decree.

So, here is a letter I sent out today to one of my elite attorneys who had referred a client for financing a few months back. After every loan closing/funding, I update the attorney and provide documentation that verifies the client has complied with the settlement as it relates to the financing and buyout requirements.

Names and precise figures have changed slightly for security and clarity.

But first, here are the numbers of the BUYOUT in the loan we just funded.

Total Buyout              $100,000.00

Ex-Wife                           75,000.00
Car Payoff                      20,000.00
Atty Trust Account          5,000.00

In Texas, the buyout is an Owelty Lien. In all other states, there is no lien, NECESSARILY. I have instructed on this recently and will instruct on it in the near future.

Dear Attorney

Thank you again for connecting us with Juan Gonzales. We have closed and funded his refinance loan. Funds for wife’s buyout amount of $75,000.00 have been wired to her account; and the other funds have also been disbursed. (See attached wiring confirmations).

I do not have a copy of the check to ABC Credit Union but I will shortly. The FedEx air bill that shipped it to Mobility is attached.

As is the case with all of your clients, Juan should be congratulated for hiring the best. You are awesome, attentive, astute, diligent….just a professional amongst professionals. It’s a great honor to work with you.

To reiterate a point that is often lost – Juan’s loan was structured as it would hardly ever be structured in any other situation or by any other lender (if I say so myself). This loan is a regular, “plain vanilla” purchase-money transaction – the same class of lien with which he purchased the house. Specifically, it is NOT a Texas Home Equity loan (attended by all its restrictive limitations, higher rates, etc.). The key element is how the Owelty was cited in the decree, how it was disbursed per the Proceeds Allocation and, of course, the fact that the ancillary real estate documents created an Owelty of $100,000 (not $75,000).

You are in an elite category of attorneys in the entire country who understand this and, more importantly, establish the mechanisms which make it work. Congratulations!

Thank you for introducing me to Juan. He is the finest of finest of customers and citizens. We are honored to know him and hope to be friends for life.

At Your Service,

Noel Cookman
[email protected]

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