So, I’m a problem solver, right? That means I attract problems…so I can solve them. I get this email not long ago.
I recently was divorced, and I have been having all sorts of issues getting refinanced. Apparently, though my divorce decree stipulates that I am to be awarded the property and what amount I owe my ex, there was no Owelty Lien stipulation in the decree. I also completed a Special Warranty Deed and a Deed [of Trust] to Secure Assumption. However, the title company is saying I can only do a home equity loan. I do have greater than 20% equity in the house, even after the buyout. I reached out to my lawyer, because I was not aware of how restrictive Texas was when it came to refinancing. I asked if there was anything I could do to get the Owelty Lien in place after the fact (my divorce was finalized in September). He hasn’t gotten back to me yet. I am not sure why he never mentioned the Owelty Lien to me in the first place. She [the ex-wife] wants to get paid, and I want to keep my house without taking on a higher interest instrument. If you have any advice, could you contact me either here or by phone?
Recently Divorced Texan
Here is exactly how we solved this problem. But first, look at the actual problems:
So, now the mortgage company he was working with wanted to do an equity loan to get “cash out.” This would have meant that he couldn’t use his VA financing options and would be saddled with a Texas Home Equity loan, putting quasi-permanent restrictions on his financing efforts while also paying a higher interest rate for the equity loan. All totally unnecessary.
But, we perform magic at The Mortgage Institute. And what I am getting ready to tell you defies what nearly everyone else in my industry will tell you.
I can’t emphasize this enough – and I’ve been shy about it because I have really sought to keep my promise that I will not overtly market to you and overwhelm you with requests for referrals. But, my reticence in the matter hasn’t helped anyone. It’s a crusade now.
I NEED TO SPEAK WITH EVERY DIVORCING CLIENT IN TEXAS!
IT’S ENORMOUSLY HELPFUL TO THE CLIENTS.
IT CAN SAVE THEIR HOUSE.
IT CAN SAVE THEIR CREDIT AND BORROWING CAPACITY FOR YEARS TO COME.
IT CAN MAKE ALL THE DIFFERENCE IN THE WORLD TO ALL PARTIES.
IT IS THE DIFFERENCE BETWEEN FINANCIAL HEALTH AND FINANCIAL DEVASTATION.
There, I’ve said it. Don’t worry about overwhelming me. I’ve got help and am getting more all the time. I have back up. We just have to help these folks. Trust me – we’ll figure it out.
Now, here’s how we solved the problem. But, don’t assume this can always be done. You’ll see that very detailed elements were in place which made it possible. That’s why it’s important that I preview and pre-underwrite every divorce decree before it’s finalized. But, in this case….
Wife had been awarded under “Property to Respondent”
R-8. A sum of seventy-five thousand dollars and zero cents ($75,000.00), due and payable by [husband] within thirty days following the distribution of funds from the refinance of the residence awarded to [husband] herein.
There was one other mention that the $75,000 represented wife’s interest in the property. One may think that the following sentence under Refinance of Marital Residence was tantamount to the creation of an Owelty
Within thirty (30) days following the refinance of the marital residence as described hereinabove, [husband] shall pay to [wife] the sum of seventy-five thousand dollars and zero cents ($75,000.00). Such payment shall be made by check, cashier's check, money order, or bank transfer.
…but, it isn’t.
Why isn’t it? Because the $75,000 was mentioned as being part of a refinance transaction rather than as wife’s “interest” in the marital residence. Now, it’s true – as you shall see – that the correct implication was made. But, an implication is sort of the opposite of the “perfecting” of the lien. And, why leave matters of this importance to an implication?
A minor point is that "within thirty (30) days following the refinance of the marital residence" does not actually tie the $75,000 to the refinance. In fact, it could be argued that it had little to do with the refinance because if the payment of $75,000 were to be part of the refinance, it would be payable on funding day of the refinance (after the 3-day right of rescission period following the closing) not in some 30-day period following the refinance.
This scant implication of an Owelty lien might have been sufficient except that…
…the parties (and the court) made it clear that there was no Owelty lien created when they executed and filed a Special Warranty Deed conveying wife’s interest to husband WITH NO REFERENCE TO AN OWELTY OR MONEY INTEREST. This means that the parties testified that there was nothing encumbering that conveyancing of interest – no dollar amount, no “tit for tat,” no exchange of one thing for the other.
Effectively, the parties and the court undid any implication of an Owelty lien by the filing of the Special Warranty Deed.
I appealed to a title company – honestly, the only title company I thought would consider the appeal. I had already been down this path numerous times with other title underwriters when trying to create an Owelty reverse. That’s a tough assignment. But, I thought we might have a case of improper conveyancing which could be corrected by the re-filing of a corrected Special Warranty Deed.
So, I sent the conformed decree and copy of the Special Warranty Deed filing and asked. Here’s what my angel answered upon her appeal to her title underwriter:
“Our UW says that because the court implied an owelty lien on page 5 of the decree, a correction Warranty Deed to document this implied owelty from the divorce decree could be prepared (as long as that specific language is in the deed regarding the implied Owelty lien). It would have to be signed by both the Grantor and Grantee.
So once that would be corrected then we could go with Owelty lien mentioned in the [new] Special Warranty Deed and that would allow us to refinance so ex-wife could be paid off.”
Do you realize what just happened? The title insurer was willing to see that the court IMPLIED – I.M.P.L.I.E.D. – an Owelty interest.
My friends, that’s amazing. And, if you think that just any title company will see that, think again. It takes some bold, brave, out-of-the-box thinking to actually see this and insure it.
Once interest is conveyed as in the filling of a Special Warranty Deed – especially as part of a divorce settlement – there remains no Owelty interest in the property.
And of course, agreement of parties is an indispensable element in creating such an Owelty lien. That is, the ex-wife will have to execute a corrected Special Warranty Deed [this time] with Encumbrance for Owelty of Partition; husband will have to execute an Owelty Deed of Trust; and, these documents will be filed as part of husband’s refinance closing.
In most cases, the parties (particularly the wife in this case) will be cooperative. After all, $75,000 is awaiting her – all she has to do is sign. But, it is not inconceivable that an EX-SPOUSE will be cantankerous enough to say “too bad – you owe me $75,000 and I don’t really care how you have to get it to me, just get it to me.”
You can make sure that there are no such “oopsies” after your divorces are finalized. All you have to do is make sure I’m involved before final divorce.
Thanks for reading. I’m getting better at responding to comments and question on my blog. So, please – give it a try. I’ll respond.
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