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Written by
Noel Cookman

How Do Divorce Buyouts Work in Your State?

Published On 
January 3, 2019

Mr. Cookman,

I have been following your emails and blog for some time, being a family law specialist in Texas; I have moved to Tennessee and been teaching domestic relations in a little law school up here for a while, and my question is pretty simple.

Will Owelty liens and your divorce lending services work here in Tennessee? They have never heard of an Owelty lien, and I am curious what the interstate application of these services might be.

Thank you for your time, and Merry Christmas.

Still Licensed to Practice in Texas, Teaching in Tennessee

♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦

Dear Friend,

So great to hear from you. I remember you well. I remember when you moved. I remember being happy for your opportunity in Tennessee and a bit disappointed that Texas was losing you. Glad you’re doing well. And, thanks for reading.

It’s interesting you should ask this. I am writing courses and materials for other states right now. And, here are the two main points of my initial synopsis/thesis:

  1. Texas is the only state that provides a lien on property for a divorce buyout (of a marital residence). So far as I have learned so far, the Owelty is only a legal provision in Texas. Although, it’s a general concept – a word with a definition – so, per state laws, I would imagine there might be some latitude in what liens are called. (See below).
  1. The key to get the proper financing in all the other states is to get the buyout to look like and function as a lien on property (Texas being the template) rather than a mere judgment against a person.

To the second part of your question –

Will…your divorce lending services work here in Tennessee? – The answer is a straightforward – YES.

I consult on those loans/cases but my “multi-state desk” handles the actual loan. My mortgage bank handles loans in all but a few states; I am personally licensed in Texas and California and my branch is licensed in those two states as well as New Mexico, Oklahoma and Arkansas. So, we can pretty much handle the business anywhere.

As to the Owelty question, let me just add that it’s amazing how mortgage financiers are missing this in Texas (a little less now that more mortgage folks have learned about the Owelty) and in all the other states. The mistake they are making is that they are “cashing out” rather than “buying out” – and there is a HUGE difference between the two.

So, until I get all the states studied out thoroughly, I recommend that divorce settlements (decrees, property settlements, etc.) specify the buyout and cite an actual lien – probably in the style or class of a vendor’s lien (might be called by various names – just avoid the word “equity” at all costs since equity financing is what triggers onerous limitations not only in Texas where it is law but in all the other states wherein limitations are per industry standards).

In point of fact, the Owelty lien (in Texas) is of the same lien type as a vendor’s lien. Vendor means “seller.” So, in every sense, the divorce buyout, being the selling of one’s interest in a property, is of vendor quality and kind. Hopefully, some simple research will indicate which liens are valid per state law and which are suspect.

I hope this helps. I’m so happy that we are still connected.

 Noel Cookman 01

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