An owelty of partition is an instrument used to allow one co-owner of property to buy the interest of the other co-owners while using 100% of the interests as collateral for a loan to acquire the property. Common examples are in the situation of divorces, probates and division of co-owned assets by people who are not partners.
In Texas there are limited ways to create an encumbrance (a lien or mortgage) against real property that is a person’s homestead. The most common ways to create such an encumbrance are for purchase money loans, or for home improvements loans. And while home equity loans are allowed in Texas, equity loans can be made only up to 80% of the value of the real property. These restrictions come into play when a person tries to buy out a co-owner of real property, and finance that purchase through a Lender. While a purchase money lien or mortgage would attach to the interest being purchased, it would not attach to the interest the person already owns. Most lenders would not want to loan money and accept a mortgage against anything other than 100% of the property.
That is where the owelty deed or owelty lien comes into play. In 1995, the Texas Constitution was amended to specifically designate an owelty of partition as one of the permitted encumbrances on a Texas homestead. For an owelty of partition to properly be ordered, the owners must be co-tenants. If the court vests title in one party and divests the other, they are no longer co-tenants and no owelty of partition can be ordered. A court-imposed lien does not extend to the interest already owned by the acquiring party. Only an owelty lien can reach that interest.
If you have any questions about owelty of partition, or jointly owned real property, call the Law Office of Gregory A. Ross, PC at 940-692-7800, or email us at info@gregoryrosspc.com
