Owelty Loan Program Topics Covered
- What is an Owelty Loan?
- Does it Have to be a Divorce Situation?
- What is the LTV (loan to value) on an Owelty Loan?
- Benefits of an Owelty Loan
- Example of an Owelty Loan
What is an Owelty Loan?
A sum of money that one co-tenant of real property is required by a written agreement or court order to pay to the other co-tenants to achieve an equitable division of property when an actual partition of the property would:
- Be impossible because land often cannot be divided into equal shares.
- Prejudice one or more parties because of the varying qualities in the land.
Owelties of partition are commonly used in:
- Divorces when there is substantial equity in a property, such as a house. The party retaining the property is ordered to pay a cash sum to the other party to compensate it for the other party’s lost interest in the property.
- Will probates to compensate beneficiaries for an unequal division of the estate when: property in the estate cannot be divided equally; and a beneficiary under the will receives a share greater than the other beneficiaries.
The owelty is used to make the portions assigned to each party equal in value.
When an owelty of partition is determined by court order or granted by agreement, and the paying party is unable to make an immediate payment of the entire sum, the amount owed may be assessed as a lien against the property that is effective on the date of the judgment or agreement. The owelty lien is evidenced by a written instrument signed by the debtor that attaches when the instrument is recorded in the county real property records.
Does it Have to be a Divorce Situation?
No. An owelty deed can be used to partition the interest of any owner.
Example: two siblings purchased a home together. Sibling #1 moved away and wants to receive her equity and out of the loan. The 2 siblings come to an agreement of sibling 1’s owelty amount (equity) They record the owelty lien and we follow the same process as the previous question with Sibling #2 getting the home and sibling #1 receiving their equity in cash.
What is the LTV (loan to value) on an Owelty Loan?
You can do a Owelty loan for up to 95% Loan to value, example the house is worth $100,000, your loan can be $95,000.
Benefits of an Owelty Loan
There is a multitude of benefits to do an Owelty loan/lien in the case of a separation,
- All your bills are paid first, this allows your attorneys, and bills to be paid from proceeds first, the benefit of this is it helps keep your credit in good standing in this difficult time.
- 95% LTV.
- It is classified as a rate and term refi, not a cash out so Texas A6 does not come into play, an owelty lien must be filed to achieve this.
- It helps one of the owners to remain in the home while providing cash to the second owner so they can go find a new home.
Example of an Owelty Loan
Jack and Jill are going through a divorce. They own a home together with a current mortgage. Their home is valued at $500,000 and Jack and Jill currently owe $300,000. They have agreed to split the equity 50/50 (or $100,000 each). Their divorce decree must specify the owelty and the owelty lien must be recorded. Jill would then refinance the property at $400,000: the $300,000 owed on the mortgage in addition to Jack’s $100,000 owelty lien. This removes Jack from the deed and loan.
The end result is Jack gets his $100,000 and Jill is the full owner of the home.Questions? Contact Mike McCown Today!