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This question was asked  by a consumer...but, it is very similar to questions asked by family law attorneys all the time. It will address property's accessible equity, divorce and equity buyouts in Texas and other states as well. There are multiple parts to this question and, there will be parts A, B, etc.


From: RB
Subject: Mortgage divorce calculation question.

Dear Noel,

I read your amazing article and I have what, for you, would be a very simple mortgage divorce question. Hoping you can help.

Divorce decree states we split 50% of all "available equity"...home appraisal calc'd at 412k, loan given at 80% refinanced at $329,600...after fees, HELOC, mortgage balance = "equity" payment was roughly 80k, split as roughly 40k between us. Now ex comes back 2 weeks later and says he believes he is entitled to half of the other 20% that was not refinanced. How would you interpret this?

Thank you.

My Answer:

Hi RB,

Thanks for writing. Some of this depends on what state your property is in. But, the math of it is probably still the same or close to the same no matter what state you’re in.

Here's the bottom line: when you and your husband took out an equity loan on a Texas homestead or primary residence, you effectively made the top 20% off limits for financing in perpetuity (until the equity loan is paid off in full). The reason for this is that no lender can advance funds that will make the total encumbrances (liens) against the property exceed 80% of the home's value at time of financing. So, while your husband may have a logical point, it is an impractical one. So, 'if you think it's a fair offer from him, ask him if he will finance it, because no lender will.

Does this help?

Noel Cookman

As I will painfully illustrate in the next few installments of this important question, there are so many things wrong with this, I hardly know where to begin. The divorce decree/settlement did not specify the buyout. The lender was not a Divorce-Lending Specialist certified by The Mortgage Institute and, therefore, had no idea how to truly resolve and SOLVE this issue. There was no preview of the decree/settlement by the lender; there was not proper construction of the buyout and a strategy to actually remove the equity lending restrictions. This is a highly specialized strategy but eminently doable.

Remember, you can email your questions to

This begins a short series (a dozen or so) of questions I have received recently from family law attorneys. I figure the best way to answer questions that you have is to....well, answer actual questions you have asked. Here's an actual but common one:

Q: I am in an interesting debate with opposing counsel and I figured you were the better person to ask.  I am of the position that the best and only real way to get a house out of an ex-spouse's name is to refinance.  They claim that the house can not be refinanced.  (yes, I did provide them your information and said that if anyone could do it, you could).  Opposing counsel feels that a deed of assumption is enough to get the house out of the ex-spouse's name and off her credit.  Please enlighten me.

You are correct. The only absolutely, sure way of removing a mortgage liability from an mortgagor is for that debt to be paid off (by, for example, another party refinancing the debt balance - that is, REFINANCE).

There are banks which grant a "Release of Liability." This, in my opinion, is suspect. The lender gives a letter that states some sort of "release" from the liability. I have not seen one; and, it is an unregulated activity so each bank makes their own rules regarding them. But, the significant thing is that the lender retains the existing original promissory note. The bank/lender does not return that note to the borrower(s) so that they can "burn the mortgage" so to speak. 

Moreover, the suggestion from opposing - that "a deed of assumption is enough to get the house out of the ex-spouse's name and off her credit" - is completely false. First of all, no deed relieves debt. Only a "release of lien," such as is filed when a loan is paid in full - does that.

Secondly, if they are referring to a Deed of Trust to Secure Assumption, not only does it NOT relieve debt, it verifies and enforces a "contingent liability." That is to say that, even though a decree (order) may assign a mortgage debt to one of the other party in a divorce, the Deed of Trust to Secure Assumption effectively establishes that the debt assigned to the other spouse might effectively REVERT to the grantee of the Deed of Trust to Secure Assumption. You know the drill: if the grantee (of the property award) defaults on the mortgage loan, the grantor has foreclosure rights and can exercise them provided they have the willingness and wherewithal to catch up back payments/fees and continue making payments into the future.


IMPORTANT. The only way to make sure that a party's financing (as part of a divorce settlement or a needed financing resulting from a divorce - refinancing or purchasing) is handled correctly is to make sure that I do it. It's simple. You just tell the client (or opposing) to call Noel Cookman at 972-724-2881 or email me at  

They said it couldn't be done - an Owelty after the....

I just closed a loan for a newly divorced customer. The other side did everything they could to keep it from happening. How we handled it makes all the difference in the world.

The facts. Divorcing couple. Husband to be awarded the house subject to a buyout of $33,550 to wife. Husband applies for loan. He could qualify for a buyout to his wife but, he has the following debts in addition to the amount due to wife:

Creditor                                                 Balance     Mo. Payment
Secured Debt #1                                 16,116              86
Revolving Debt #2                              11,037            332
Installment Debt #3                             8,225            322
Car Note                                                 5,522           213
Need for misc. expenses                     5,550         *166
Total                                                   $ 46,450    $ 1,119

*(assuming same rate as revolving debt repayment)

Borrowers are qualified for mortgage loans based on monthly payments – the famous debt-to-income ratio is based on monthly income and monthly debt payments.

Husband’s total debt ratio (which includes the house payment, of course) was about 55%.

So I recommended that the Owelty be agreed at $80,000 and disbursed thusly:

Wife                                            $ 33,550
Secured Debt #1                         16,116
Revolving Debt #2                      11,037
Installment Debt #3                     8,225
Car Note                                        5,522
Need for misc expenses            5,550
Total                                         $ 80,000

The extra $46,450 can be borrowed for $231.92/month, saving the husband $887/month (the $1,119 payment goes away).

Now, husband’s (borrower’s) debt ratios are closer to 45% - not 55%; and, he qualifies. We know – we pushed the buttons and received the automated Fannie Mae approval…just like we do many times each day. It’s what we do. So, we know when we have a loan approval and when we don’t. It’s no great mystery.

Why can’t husband just take out an equity loan for what he needs to pay off debt? That’s what wife’s attorney asked…or, really, stated; as if, we could wave a magic wand and just make an equity loan appear. Well, here’s exactly why that can’t be done.

The property appraised for 388,000. Texas Home Equity laws limit the total Loan To Value loan amount which can be borrowed against a home (when getting “cash back”) to 80%. In other words, 310,400 is the maximum amount of liens which can be placed against that property if one penny or more of cash is accessed by the borrower.

Payoff of mortgage                                       $ 252,335.60
Buyout to Wife                                                     33,550.00
Total Closing Costs                                               6,459.19
2017 taxes and escrow account cushion       10,405.21

That's $302,750.00 – that leaves room for $7,650 or $38,800 less than what husband needed to pay off debts and provide for misc. property needs.

The law and mortgage guidelines simply do not allow that much money to be lent. Remember, courts cannot order lenders to advance funds. Nor could they or would they order lenders to advance funds in excess of legal, constitutional limits to lending.

So, what did the wife’s lawyers do. They said “no.” Here’s what she actually wrote:

I will not agree to an owelty lien to refinance the note on the house. An owelty lien acts as a second mortgage and does not take my client's name off the mortgage note. Mr. Smith [not real name] should probably start looking into a "cash-out" or an actual refinance. If you need names other than Noel Cookman, please let me know.

Wife’s attorney argued that an Owelty should not be provided in the decree. She refused to include Owelty language for even her client’s $33,550. She obviously didn’t understand that the Owelty actually secures wife’s interest in the property, not to mention that it allows the one paying the money to obtain better options in financing said buyout. In other words, her client paid her to argue and prevail against her best interest.

Nothing I could say moved them. I explained it every way possible. Wife’s attorneys even said that I claimed that an Owelty lien would get the wife off the (current) mortgage. Of course, I’ve never said anything of the sort. The fact is, I tried to use the Owelty constructed at $80,000 in order to qualify the borrower-husband so that he could, in fact, finance the buyout to his ex-wife and "get her off the note."

So, the decree was entered and the only mention of the $33,550 was in property to wife with a mention of husband’s requirement to refinance; and, in the paragraph dealing with the sale of the residence at which time wife would receive the first $33,550.

One interesting aside: the decree still created an Owelty even though wife’s attorney took great pains to avoid Owelty language. Those of you who have taken my Owelty course may remember that I say
It’s possible to use the word Owelty many times in a decree and still not create an actual Owelty lien; it’s also possible to NOT use the word Owelty at all and yet, create an Owelty lien.
Well, this is a case in point. The elements of an Owelty were introduced into the decree. Those elements are:
- Clear awarding of property
- An amount tied to the other parties interest in that property
- Legal Description of property
It was funny. But, the attorney who took great pains to avoid an Owelty creation; yet, because of her obstinacy, actually did create one. (Of course, it still wasn’t to the amount that we needed….but, you know that already).

Thankfully, the great Leslie Barrows ( had referred husband to us. But, it still looked as if the settlement (divorce decree) would really disallow the financing. Other lenders said “no.” The only alternative was a more expensive and permanently restrictive loan.

So, am I just telling you a sad story? Fortunately, I have been blessed with a stubborn turn of mind. When I suspect something is possible, I do not take “no” for an answer. It’s similar to that famous “can do” attitude but a little different. The only thing I know to call it is a “turn of mind.” It’s just the way I think. It’s why I started the Divorce-Lending Specialty when no one in my world had ever heard of such a thing. I thought, what if??? What if someone could help divorcing folks before they “ink the deal” and agree to terms that DISQUALIFY them from financing. Maybe I can help.

So, here’s the triumph. (I love winning. And, it’s all the better when NO ONE HAS TO LOSE – in other words, we do not have to defeat anyone in order to win. Everyone wins). [Well, wife’s attorney didn’t win because she now labors under her former client’s knowledge that she had misrepresented her client. I can only hope that the attorney will have learned something through all of this.]

Here’s how we solved the problem. Even though many people may tell you that the Owelty agreement and lien in the decree cannot be changed (without motion for new trial / modification of the decree or by nunc pro tunc), I had done enough research to know that the courts and those who rely on legal agreements and orders (like title companies and lenders) understand that two parties to an agreement can pretty much do what they want so long as they both agree to it.

Think about it – if you owe someone money, do they have to collect it or can they agree that you no longer owe it or that you owe less than what was initially agreed? Conversely, if you as the one who owes money decide that you owe the other party more money, can you agree to that different amount owed? Of course, you can. So long as you both willfully and of your own free will enter into an amendment to the agreement, no one will exercise some power to overcome your agreement.

So, I recommended to the parties that the Owelty agreement and lien be changed (really created) at $80,000 with a net buyout to wife of exactly what she had agreed and the remainder disbursed according to the schedule I had outlined. Again, such payment of debt enabled the borrower to qualify for the loan. It was the hinge features of the transaction. It was the not-without-which.

Here’s the kicker – the wife had no problem with this. Yet, it was her attorney who resisted the solution for months!!! As it turns out, the wife preferred GREEN MONEY IN HER BANK ACCOUNT to WHITE PAPER filed appropriately at the COURT HOUSE. So, this coming Monday, we will be wiring $33,550 to her bank account.

Here are the documents that we had prepared to accommodate this agreement:

The Owelty Deed of Trust ($80,000)
The Special Warranty Deed with Encumbrance for Owelty of Partition ($80,000)

The only nuance was that the title company wanted wife to appear in person to acknowledge and execute the Owelty agreement of $80,000 (by her signature on the Special Warranty Deed). Typically, it’s a little more effortless on the part of the grantee of that Owelty Deed of Trust (receiver of funds) and they only have to mail the form to the title company.

The “long and short” of it is:

- Wife’s attorney argued for something that was not in wife’s best interest and was ultimately changed to conform to what wife wanted anyway.
- In spite of what wife’s attorney said, we performed on our promise to lend according to the precise parameters I had outlined.
- Wife incurred extra time and, no doubt, expense (I measured several months of a delay) to get what she would agree to all along.
- We solved the problem. A problem that opposing didn’t even think they had.

The key to getting the deal done is simple - CALL ME.

Noel Cookman

So this attorney calls and asks...

No, this is not a joke. It's just one of many calls or emails I receive each month. I've designed my business model so that I can take care of your questions and *conundrums. I can do this because you have been so kind in the past many years to refer your clients to me for financing. It's one thing to theorize about how mortgage guidelines are affected by divorce settlements. It's quite another to "turn white paper into green money;" that is, actually close and fund transactions that

Back to the question:

Q: Can I secure a divorced client's interest in a home with an Owelty lien, such home to be sold and proceeds split per a formula (like 50/50 or whatever)?

A: The answer isn't yes or no. It's actually "Don't try this at home. Call me." In other words, a solution can be formulated once I determine what the parties are trying to accomplish and what either of them might want to accomplish in the future.

Let me answer the question by outlining ways that you can protect the grantor client's interest in the home.

  1. Do not award the property to either party but provide for the sale of it with a splitting of the net proceeds. This requires both parties to remain as co-owners and agree on terms of sale. That doesn't work for everyone; and, obviously, there is some level of rationality and common sense that is required from both parties in such a business transaction. I'll leave that right there. Only to say that, I don't think it's usually important to define what net proceeds are with some formula - the parties determine that figure by the terms of their contract and the payoff of their existing indebtedness on the property. You might specify how the net proceeds are to be disbursed or used (as in the payment of certain debts before the splitting of proceeds, etc.). But, the parties to the sales contract determine the exact dollars of net proceeds. Title companies make that calculation straightforwardly.
  1. Award the house to one party subject to an Owelty lien (with dollar amount), provide for its sale or payment of Owelty within a particular time frame - and get ready to enforce. But, again, how does either party or either attorney know if such a transaction can occur? Is everyone guessing at this point? Hoping? Assuming?  There are two options in this scenario. First the house sells at a price whereby everyone is paid what they have agreed. Secondly, the house does not sell but is refinanced by the grantee at terms which satisfy most of these settlements, that the grantor is relieved of the mortgage debt and paid his/her Owelty proceeds
  1. Provide that the house be sold (and proceeds split) by the owners (both parties) and that if the house not sell, the house be awarded to one party and an Owelty be attached. The Owelty could specify a formula or percentage. This flies in the face of everything I've taught about Owelties, that it must be defined as a dollar amount. And, it's true, before the Owelty is consummated (financed), the parties have to agree to a dollar amount. I dislike this scenario very much for a few reasons. As just mentioned, a dollar amount has to be agreed by two parties who divorced each other. It can happen but who would ever count on it and design an agreement whereby it had to happen? It's kind of like some people at the beach who unadvisedly wear bikinis or thongs. Just because one can doesn't mean they should.  I've seen things I cannot unsee - God help me! Another reason I do not like it is because virtually all situations can be resolved by using scenario 1 or 2.

Short answer: So long as ownership is retained by both parties, the Owelty lien cannot be used to secure interest.

Here's why. If both parties retain joint ownership in a property in anticipation of a sale and splitting of the proceeds (different from splitting or sharing equity) then one main feature of Owelties is missing - the simultaneous act of conveyancing & divestiture. Owelty liens are in force only as the grantor conveys his/her interest and divests themselves of ownership (interest). That is, Owelties are not payable to owners.

Was this helpful? What other questions do you have? Email me at and I'll answer your divorce-finance related questions.

Noel Cookman

*yes, I am aware that there is an alternative spelling for the plural of conundrum; that being “conundra” which is greeted, I might add, with a squiggly red line under it because Bill Gates does not approve of this Latinized rendition. I direct your attention to,5753,-5253,00.html so that you might see that there is no little debate about such spelling. For now, I shall not throw tantra about the whole sordid affair but I just might call a series of colloquia or at least some symposia to settle the matter.

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