BUYOUT VS. CASH OUT
In many divorce situations, one of the most important and emotional decisions is which party will keep the marital home. In some cases, both parties agree to sell the home and divide the equity. In other cases, one spouse decides to keep the home and then needs to buy out the other spouse’s equity. In order to do this, the spouse keeping the home will need to refinance. The refinance will not only allow the equity buyout, but it will also remove the exiting spouse’s name from the note and title on the home. The divorce decree will typically dictate the division of equity as well as which spouse will be awarded the home and the responsibility of the mortgage. In a community property state like Texas, it has unique equity laws which can complicate this process. This is where an Owelty Lien or referred to in other states as a Divorce Buyout can come into play. An owelty lien is not a Texas Cash Out. This is a benefit to the client because it is a lower rate and has higher debt to income limits. A Cash Out has time restrictions that an owelty refinance does not have.
An Owelty Lien is a lien created or a financial sum that is ordered to be paid by one party to the other to affect an equitable partition of property in a situation such as divorce. Basically, it is a lien on the entirety of real property that was jointly owned by a husband and wife. (The marital home) The lien must be paid before any proceeds from a sale or refinance are distributed.
Owelty liens are a type of deed that allows divorcing couples to divide the existing equity in the marital home. This action is commonly utilized in divorces to “buying out” the remaining spouses’ interest in a home.