Q&A: When Does an Owelty Have to be Filed? or How Wrong Can a Judge Be?

To one of Texas’s finest family law attorneys I wrote: (I share this first paragraph just to dispel the persistent, perennial and pervasive myth that I am perfect and make no mistakes).

You had sent an email inquiry a few weeks ago. I responded….I think. But, I have had some serious technical difficulties (just about fixed now) and I’m not sure my response got back to you.

Did you get a response from me? Thank you and I apologize for the bother.

Noel Cookman
America’s Premier Divorce-Lending Specialist

The kind and gracious attorney responded:

You did respond, and I really wish we requested you that you appear. My client gave me permission to consult with you about the case, though. The hearing was a disaster as the Court ruled that there was no owelty of partition or owelty lien requirement for a refinancing loan with cash out to the other spouse as long as she was present at the closing to sign the same deed as my client was required to sign at closing. The Court found that owelty liens/deeds only apply if you are signing the deed in advance of the closing and my client should just allow his ex-wife to go to the closing with him so there would be no need for the owelty lien to close the refinancing loan. His bank needed the deed before they would approve the loan, though, and were not permitted to allow the ex-wife to sit in on the closing with the former husband. Luckily, we were able to finally get an order that the ex-wife would appear at the closing and sign “whatever documents were necessary to close on the refinance,” which was a SWD with an encumbrance for owelty of partition. Next time I will make sure we call you in advance, just in case we run into the same problem! Thanks for your help!

My response (with some additional commentary):

Excellent. You got what your client needed ultimately although the court seems a little confused about the creation of an Owelty (in the decree) versus the “perfecting” of it (in the executed and filed Owelty documents).

I may not make friends on the bench by saying this but why is any judge stating what is and is not required in financing? What do they know? I can think of a dozen things that is wrong with this ruling. Here are a few:

1. Since the court is not making the loan, perhaps the court should rely on the people who have the money (and must abide by laws and regulations ten thousand times every day in making their loans) to instruct it on what is truly “required for a refinancing loan…” Just once, I would like to require such a judge to actually make the loan. It would be the last time we saw such nonsense.
2. If the Owelty is properly created, it is created in the divorce decree NOT in the Owelty Deed of Trust and Special Warranty Deed. The ensuing real estate documents – WHEN THEY ARE FILED – simply “perfect” the lien. See https://www.nolo.com/legal-encyclopedia/what-does-mean-perfect-lien.html for a short primer on what it means to perfect a lien.
3. The court was actually preventing the grantee of the Owelty Deed of Trust from securing her interest in the property until the last second. To what end? How could the court possibly see this as some sort of protection? A filed Owelty Deed of Trust is called a “SECURITY INSTRUMENT.” The court, in this case, was inserting INSECURITY. Silly!
4. This unnecessarily bothered the grantee-party and caused her to do something that she need not have done. As an efficiency-obsessed engineer of events, it bothers me to see judges requiring expenditures of time, money, energy, resources and more just to satisfy an uninformed assumption about liens and financing.
5. This requirement (that the grantee appear at the title company upon loan closing) introduced a risk that endangered the transaction. And that risk is that the grantee might not show up when the loan documents were ready. Sure, she could have been compelled. But, that is of little use when the lender must cancel that transaction and re-draw documents to accommodate a spouse who might be uncooperative…if they can even do that. And, no. You know as well as I do that just because an ex-spouse is getting some money doesn’t mean that he or she can be counted on to be cooperative. As a person who sees the details and the inside of loan closings, I can tell you that there are scores of things that can go wrong which could endanger a transaction and make it either more expensive to close (rate lock expirations come to mind as one example) or actually impossible to close.
6. Repeat #1 – it needs to be said again. If every officer of the court would read and heed that, citizens and their governmental mechanisms could save untold millions of dollars in unnecessary costs not to mention incalculable difficulties.

However, it also sounds like the lender could have been confused about how to process such a transaction – they thought they could not process, underwrite and draw up their docs until after Owelty docs had been executed. While I can understand the reasoning, this is a good example of how reason stymies progress and, for no good reason, prevents a simple transaction from moving forward.

Here is how I have solved this. In our process, we underwrite and our title agency processes AS IF the Owelty was already in place. That’s it. Then, upon closing, we have assured that the documents have been executed and the title agent assures that they are filed in proper order. In other words, we signal to all cogs in the wheel

“hey guys, heads up! I know you will not find an Owelty lien on title, filed of record. But, there is GOING TO BE an Owelty filed of record and we just so happen to know about it in advance. Now, everyone get prepared and process everything based on this one thing – I am telling you that an Owelty lien will be filed in the proper order so that its financing will be exactly as we have presented it.”

You did it though – that’s what counts. That “all necessary documents” should appear in all divorce decrees, eh. 🙂 And it sounds like everything worked out. Congratulations.

Noel Cookman
America’s Premier Divorce-Lending Specialist

2 comments on “Q&A: When Does an Owelty Have to be Filed? or How Wrong Can a Judge Be?

  • Do you sign the Owelty lien Prior so the refinance process can begin or do I wait to sign it at the closing when I ask for my check from the refinancing?

    • We like to have all Owelty documents signed at closing so we can coordinate the chain of title – the placinng of the Owelty lien > the paying of the Owelty lien > the releasing of the Owelty lien.

      Many lenders also think that they cannot process or underwrite an Owelty lien before it has been created and filed. We, on the other hand, use the Wayne Gretzky method – “I skate to where the puck is going to be not to where it is.” We process and underwrite based on what the settlement WILL be (even as a worst case scenario). The fact that it changes during the process doesn’t bother us. We just go with the flow and enter the new parameters into the loan file and then notify the relevant parties/attorneys if there will be a problem. That way, the divorce can settle according to what is possible rather than what attorneys and parties think SHOULD happen.

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