In all my mortgage experience, I have observed the most misunderstood concept in divorce lending to be the spousal buyout or “Owelty lien.”
Any mortgage is a lien on the property that must be paid in full to the creditor before the property can be sold. There are also mechanics liens (placed on a property by a vendor in lieu of complete payment for a job) and home equity liens. The federal government might place a tax lien on a property for an unsatisfied debt.
A lien is defined as “a right to keep possession of property belonging to another person until a debt owed by that person is discharged.”
A Owelty Lien is a lien created for 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 lien must be paid before any proceeds from a sale or refinance are distributed. This action is commonly utilized in divorces to “buying out” the remaining spouses’ interest in a home.
Our correct use of the Owelty lien sets us apart from other lenders in the industry … and we often work with title companies to ensure the documents spelling out the transaction (including, for example, a Special Warranty Deed, a Release of Lien) are recorded in the correct order to transfer title into one spouse’s name individually at final divorce.