Owelty Transactions and in Texas - Res Ispa

Owelty Transactions and Divorce in Texas

Texas Land Title Institute December 8-9, 2016

Mr. John H. Dorris First American Title Insurance Company

1500 S. Dairy Ashford, Suite 300 Houston, TX 77077 281.504.2422 Phone jdorris@

John H. Dorris

John H. Dorris is Senior Underwriting Counsel for First American Title Insurance Company in Houston. He has been with First American since June of 1996. His current duties include providing underwriting support for agents and direct operations throughout Texas.

This is John's second stint with First American in Houston. From June 2002 until November 2005, John was State Counsel/Assistant Vice President for First American's New Mexico operation. His duties there included claims handling for the state and providing underwriting support for agents and direct operations.

Prior to transferring to New Mexico, John was Underwriting Counsel/Assistant Vice President for First American's Texas Operation. His duties included answering underwriting calls from agents within and outside of Texas, and assisting with claims. During this time, he also served as the Texas Coordinator for First American's New York Commercial division.

Prior to joining the Texas underwriting staff, John was Division Counsel for First American's Houston Division. Before joining First American, he was an Associate Attorney for Moore & Jones, a law firm in Hattiesburg Mississippi.

John received a Bachelor of Arts degree in Marketing from Mississippi State University and his Juris Doctorate from the University of Mississippi.

John may be reached at 800-347-7826 or by email at jdorris@.

The Basics

Valid liens against homestead property in Texas:

1. Purchase money 2. Property taxes 3. an owelty of partition imposed against the entirety of the property by a court order or by a

written agreement of the parties to the partition, including a debt of one spouse in favor of the other spouse resulting from a division or an award of a family homestead in a divorce proceeding; 4. Refinance of a valid lien, including Federal Tax Lien 5. Work or materials used to construct new improvements 6. Home Equity Loan 7. Reverse Mortgage 8. Properly converted manufactured home lien

Owelty Definitions:

- A payment made to the other party when it is impossible to partition land into units of exactly equal value.

- A lien created or a pecuniary sun paid by order of the court to effect an equitable partition of property (as in divorce) when such a partition in kind would be impossible, impracticable, or prejudicial to one of the parties. Meriam Webster

- Equality. This word is used in law in several compound phrases, as follows: 1. Owelty of partition is a sum of money paid by one of two coparceners or cotenants to the other, when a partition has been effected between them, but. the land not being susceptible of division into exactly equal shares, such payment is required to make the portions respectively assigned to them of equal value. 2. In the feudal law, when there is lord, mesne, and tenant, and the tenant holds the mesne by the same service that the mesne holds over the lord above him, this was called "owelty of services." Tomlins. 3. Owelty of exchange is a sum of money given, when two persons have exchanged BL.LAW DICT.(2D ED.)

The Constitutional provision expressly allowing owelty liens against homestead property was passed in 1998. In 1989, a bankruptcy court had held that an owelty lien was not sufficient to place a lien on an entire interest when it is used to acquire another co-owners interest. In that case, the court held that the lender that re-financed the owelty lien only had an interest in the undivided interest that was acquired, not the undivided interest that was already owned by their borrower. When they foreclosed, therefore, they became co-tenants with their borrower.

Owelty Scenarios: 1. H and W acquire homestead while married. Divorce decree specifically states that it is

awarding the homestead to one spouse, and imposing an owelty lien using language such as:

Is anything further needed? 2. H and W acquire homestead while married, subject to a purchase money lien. At the time of divorce, there is very little equity in the property, and W, just wanting to be done with the thing, is willing to let H have it, and receive no payment. She does not, however, want to remain on the note with H. The decree states that the property is vested in H, and W is divested, and contains a good legal description.

What else is needed? Is an owelty deed and/or lien needed in this situation?

3. H and W acquire homestead while married. At the time of the divorce, it is worth $300k and is free and clear. W wants to keep the house, and H is willing to let her have it. W currently has no money to buy H's $150k share, but expects to have the money in about two years. H is willing to wait that long for his money, but wants security for the obligation. Accordingly, the court awards the property to W, divests H, and grants H an owelty lien for $150k.

What is the problem here?

4. H and W acquire homestead while married. At the time of the divorce, the outstanding lien is paid down to 200k, and the property is worth 300k. H is to get the property in the divorce but can't pay W her half of the equity. Also, W wants H to refinance and get her off the note. The decree vests H and divests W. It also grants an owelty lien to W in the amount of $50k.

What else is needed to get W her 50k and get her off the note?

5. W owns a house free and clear when she marries H, and they move into it as their homestead. During the marriage, H loans W $100k to start a business that promptly fails. As part of the divorce, W is willing to give H a note for the $100k. H also wants security for this, so the court grants him and owelty lien against W's property to secure the note. The court confirms the property as W's, and orders W to execute an owelty deed of trust to H. Now, in order to get H his money, W goes to her local bank and applies for a refinance. Local bank approaches Home Town Title company and wants a policy.

Can we safely insure this loan? If so, how? If not, why not?

6. H and W acquire a house after the get married, paying $200k. Soon, they decide things aren't working out, so they decide to divorce. Not having kids or a lot of assets to worry about, they decide to forgo a fancy lawyer and file for their own divorce, getting their documents from a website based in Kazakhstan. Needless to say, the decree, though somehow signed by the judge, is not very good or thorough. Among other things, it makes no provisions regarding the house. After the divorce is concluded, H decides he wants the house, and W is only too happy to sell her half to him for $100k.

Assuming H can't pay cash for W's half, how, if at all, can they accomplish this?

Bonus Non-Divorce Question

7. Bertha Sue died, and her only heirs were her sons, Larry, Moe and Curley. She only had one asset of any significance which was her modest house, worth $120k. At the time she died, she lived in the house with Larry, who took care of her. Larry wants to keep the house and buy out his brothers. Assuming Larry doesn't have the funds to pay cash to his brothers, how can this be accomplished?

***Deeds attached as exhibits are by Chuck Jacobus and the State Bar of Texas.

Sample Divorce Decree Language

"DISPOSITION OF RESIDENCE HOMESTEAD. Husband and Wife own, as a part of their community estate, the following described real property that has heretofore been their marital homestead: ________________ (insert legal), more commonly known as __________ (insert street address), and hereinafter referred to as the "Residence Homestead."

The Court finds that this property cannot be divided in kind without significantly impairing the value of the resulting portions and that a just and right division can be made without compelling a sale of the property, if this Decree orders a partition of the Residence Homestead with an owelty award, properly secured, to equalize the shares. The Court further finds that, to the extent of the Residence Homestead, this Decree is a partition of the community property of the parties and that the creation of a secured indebtedness between the parties is necessary to accomplish a just and right division of their estate.

IT IS ORDERED that ______________ (Husband/Wife or Petitioner/Respondent/or Name of Party) shall own, possess, and enjoy the Residence Homestead as ______ (his/her) sole and separate property and ______ he/she is hereby awarded all of the community estate's interest in and to such property, both land and improvements, subject to the mortgage-secured indebtedness now encumbering the property, which _______________ (Husband/Wife or Petitioner/Respondent/or Name of Party) assumes and agrees to pay, and further subject to the lien or liens awarded to or ordered made in favor of ___________ (Husband/Wife or Petitioner/Respondent/or Name of Party) under the terms of this Decree. Likewise, __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) is hereby divested of all right, title, and interest in and to the Residence Homestead, except for the lien or liens awarded to or ordered made in favor of __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) under the terms of this Decree.

IT IS ORDERED that, to accomplish a just and right division between them, __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) shall recover from __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) the sum of ____________________ DOLLARS ($________________), to be paid by __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) to __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) for the purchase __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party)'s interest in the Residence Homestead. The award of this sum to __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) is necessary for an adjustment of equities between the parties, in connection with the transfer to __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) of full interest in the Residence Homestead. To enforce payment of this sum by __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party), an equitable judicial lien is hereby created and awarded to __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party), which lien is in the nature of a vendor's lien and encumbers the full fee simple title to the Residence homestead. This payment between the parties is part of the division of their community property estate and shall not constitute or be construed as any form of spousal support or alimony. Any third party who advances funds to __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) for payment of this sum owed to __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) shall, with or without formal assignment of

lien, be subrogated to the equitable judicial lien of this Decree.

The parties are ORDERED to execute the following documents not later than _____ (___) days from the date on which this Decree is entered: A Warranty Deed in owelty-of-partition form, executed by both __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) and __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party), conveying the Residence Homestead to PETITIONER; a Real Estate Lien Note from PETITIONER to RESPONDENT, in the principal sum of $_______________ less any part of __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party)'s award then or previously paid by __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party); and a Deed of Trust from __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) to __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) as Beneficiary, encumbering the Residence Property and securing payment the Real Estate Lien Note given by __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party) to __________________ (Husband/Wife or Petitioner/Respondent/or Name of Party)."

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