BRIEF TUTORIAL ON THE OWELTY LIEN
Sometimes, it’s simpler for me to just share my interactions with attorneys in the crafting of their decrees for their clients who are seeking the financing of their Divorce Buy-Out Refinances. We pre-underwrite all decree drafts. It’s critical to loan approval and delivering on our promise to “turn white paper into green money.”
I did this brief review on just one aspect of a decree for a divorcing homeowner we are financing.
Here is the pertinent language in a decree draft sent by one of our finer attorneys which I just reviewed (pre-underwriting review, not legal review). Names and addresses are redacted or altered to protect privacy; and, some literary license was taken to clarify.
Refinance of Mortgage
The parties AGREE and IT IS THEREFORE ORDERED that Petitioner may refinance the mortgage secured by the residence awarded to him herein. IT IS FURTHER ORDERED that, if Petitioner cannot or does not refinance the mortgage on or before the 90th day following the entry of this Decree, the parties shall comply with the Sale of Residence provisions below.
In the event that Petitioner refinances the mortgage on or before the 90th day following the entry of this Decree, Respondent shall be awarded 50% of the net equity, which shall be calculated by subtracting the balance of the mortgage on the date of the refinance loan closing from the value of the house shown on the appraisal done by the refinance mortgage company during the refinance process.
Sale of Residence
IT IS FURTHER ORDERED AND DECREED that, in the event that Petitioner cannot or does not refinance the real property awarded to him herein on or before the 90th day following the entry of this Decree, the property and all improvements located thereon at [Legal description redacted], shall be sold under the following terms and conditions:
[Various but not unusual terms and conditions]
5. The net sales proceeds (defined as the gross sales price less cost of sale and full
payment of any mortgage indebtedness or liens on the property) shall be distributed as follows:
- The parties shall each be awarded 50% of the net sales proceeds.
Transfer and Delivery of Property
Respondent is ORDERED to appear in the law offices of [attorney name and address redacted] on or before the 5th day following the entry of this Decree and to execute, have acknowledged, and deliver to Petitioner these:
1. Special Warranty Deed.
Before I give my feedback, I would like to highly recommend a phrase that this attorney inserted into her decree – THAT VIRTUALLY EVERY DECREE SHOULD HAVE if there is a refinance with a buy-out contemplated. [I will give credit later if/when the attorney allows.] It has nothing to do with this topic today but it is PERFECT.
In the method of determining of the buy-out amount, the value calculation is settled with:
“…from the value of the house shown on the appraisal done by the refinance mortgage company during the refinance process.”
Do you remember from my CLE webinars? The ONLY value that the lender can consider is that which is reported on the appraisal which it orders pursuant to a very prescribed process established in federal law.
Back to the Owelty topic. Here’s my feedback.
Thanks again for connecting us with your client. It’s always a pleasure to work with you and your clients.
Here is my feedback after pre-underwriting the draft of the decree.
Under Transfer and Delivery of Property, Respondent/Wife would sign the Special Warranty Deed with Encumbrance for Owelty of Partition. Currently, it reads that Respondent/Wife will sign a Special Warranty Deed.
We could have that document prepared along with the Deed of Trust to Secure Owelty of Partition (for Petitioner/Husband’s signature) and Release of Lien (for Respondent/Wife’s signature upon payment to her).
The Attorney wrote back with a familiar and rational question/suggestion.
Regarding the deed documents, I do not believe we need to include any encumbrance for the owelty since Respondent/Wife will be getting paid immediately upon the transfer.
Attorney for Petitioner
The nature of the Owelty (of Partition) is that it exists (that is, it is created) by three elements in the decree.
The use of the word or phrases Owelty or Owelty of Partition – in the text of a decree of divorce - are not necessary for the creation of an Owelty of Partition.
It is possible to use those Owelty words in a decree and still not create an Owelty of Partition; it is equally possible to have no mention of these words yet still create an Owelty of Partition. The latter is the case herein.
Moreover, the title company will require a Special Warranty Deed with Encumbrance for Owelty of Partition (signed by Wife) and a Deed of Trust to Secure Owelty of Partition (signed by Husband) in order to insure the loan transaction.
The Release of Owelty lien recorded in public records is necessary so that Petitioner/Husband will be able, afterwards, to sell or negotiate his property without the Owelty encumbrance. Note: As mentioned, the Owelty encumbrance will exist – even without the filing of the SWD w/Owelty and the DOT to Secure Owelty – because it will exist in the decree; and, a title company in a future transaction will underwrite the decree and require satisfaction of that “lien” in favor of wife.
I love the response from the attorney.
Perfect. Thank you for that clarification. I have updated the draft to refer to the specific property documents needed and I will send this to Wife’s attorney now with this information.
Follow up question:
So, if an Owelty exists in a decree even without filing the SWD w/Owelty and the DOT to Secure Owelty, what is the purpose of filing deeds in property records?
“By The Way” Department
Some of the onerous restrictions, limitations, and elements of a Texas Home Equity “cash out” loan:
Just so you know.
Thanks for reading.