Owelty Liens and Partition Deeds in Texas
Co-owning a home is wonderful when everyone’s aligned. But when needs change through divorce, shifting finances, or co-owners moving in different directions—Texas law gives you a practical way to unwind ownership through an equitable partition without chopping a house in half. That partition is called the owelty of partition. You may hear it mispronounced as “wetly”; the correct term is owelty (OH-well-tee), and it simply means equality. In real estate, an owelty arrangement lets one person keep the property while the other receives fair value for their interest through a lien secured by the entire property.
If done correctly, an owelty lets one owner keep the home, gives the other iron-clad protection through a recorded lien, and threads the needle of Texas homestead law. The ingredients are straightforward—clear agreement or decree, a well-drafted owelty deed, proper security documents, and careful recording—but the sequencing, lender coordination, and homestead nuances reward professional help. If you’re considering an owelty in a divorce or co-owner buyout, involve a lawyer, lender, and title company early, get pre-qualified, and plan for a clean release at the finish line.
What an Owelty Deed Really Does
Think of an owelty lien as a court-recognized way of “cashing out” the departing owner or spouse without forcing a sale of the home. Instead of dividing bricks and boards, Texas allows the parties—or a judge in a divorce—to fix a lien on 100% of the property in favor of the person giving up title. That lien represents the equalizing payment: it can mirror the recipient’s share of equity or secure other agreed obligations (for example, fee reimbursement or a debt equalization). The staying owner or spouse receives full title; and the departing owner receives a lien that must be paid at refinance or sale, or even earlier if the parties agree.
Here’s what simple owelty language often boils down to:
- Immediate Title Exchange. One party receives 100% title today;
- Owelty Deed & Lien/Note. The other party receives a lien for a fixed sum that represents their share, due when the property is refinanced or sold.
Texas treats owelty liens with special respect because of homestead protections. The Texas Constitution expressly permits an owelty of partition on a homestead when created by court order (such as a divorce decree) or by written agreement between the parties. That matters because it gives families and co-owners a valid path to secure payment on homestead property without turning the deal into a Texas home-equity (50(a)(6)) cash-out. In practice, that constitutional footing often allows lenders to treat an owelty refinance as rate-and-term rather than cash-out, which can mean more favorable loan terms. Title companies are used to this structure and will insure it when the paperwork is done correctly...
...a person or family may only have one homestead property, and it must be used as a “home, or as both an urban home and a place to exercise a calling or business[.]” Tex. Const. art. XVI, § 51; see also Tex. Prop. Code § 41.002. If a judgment creditor finds non-homestead property, the creditor may force the sale of that non-homestead property. However, Owelty Partition language of Section 50(3) of the Texas Constitution states that "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" is specifically excluded from homestead protection.
Where Owelty Fits in Divorce or Probate
Divorce is the most common setting for the creation of owelties. A court awards the house to Kate. William, the ex-spouse, receives an owelty lien for the agreed value—say, $200,000. Kate keeps the home and has time to refinance; William’s interest is protected because the lien sits on the entire property and must be paid from closing proceeds when the home is refinanced or sold.
The same logic works outside divorce such as in probate. Two siblings inherit a condominium; one wants to live there, the other wants cash. An owelty agreement lets the staying sibling take full title while the other holds a lien that pays out cleanly later.
Owelty Deeds lets families and co-owners avoid fire-sale timing and structure payouts that match credit, income, and market realities. It can also be paired with a new mortgage so the staying owner borrows enough to retire existing debt and fund the owelty payout in one transaction.
How to Properly Setup an Owelty Partition
Successful owelty deals are paper-driven and sequence-sensitive. You’ll typically see four building blocks:
- Authority to Create the Lien (Order or Agreement). In divorce, the decree itself can establish the owelty; outside divorce, the parties sign a stand-alone Owelty of Partition Agreement. This document states the amount (or method of calculation), when it’s due, and how it will be secured.
- The Conveyance (Assigning Partition Deed). An Owelty of Partition Deed transfers 100% title to the staying owner and, crucially, fixes the owelty lien against the entire property. This is recorded in the county’s real property records so the world—especially lenders and future buyers—can see it.
- The Security Instrument (Supporting Note & Trust). If the equalizing payment is financed, an owelty note and deed of trust secure repayment on standard Texas forms. The deed of trust will identify the owelty purpose so title insurers can comfortably place it in first-lien position when appropriate.
- Title Insurance and Lien Priority. Because these instruments affect homestead property, the title company will examine priority. You’ll often see language acknowledging a vendor’s lien and the owelty lien as first and superior to the owner’s homestead claim. Getting this right at the drafting stage prevents expensive “priority” headaches later.
There are two common timelines. In some transactions—especially where there’s already a decree—the parties record the owelty deed before closing, then the lender refinances the owelty amount as a rate-and-term loan. In others, title transfers and the lien are created at closing alongside the new deed of trust, and the lender directly disburses the owelty amount from loan proceeds. Both are routine in Texas; the choice often turns on lender guidelines and how quickly the parties want to close.
Why choose an owelty instead of a Texas home-equity loan?
- Homestead friendly: Owelty liens are a constitutionally permitted way to secure payment without doing a Texas home-equity (50(a)(6)) loan.
- Financing flexibility: Many lenders can treat an owelty refinance as rate-and-term (not cash-out) because the borrower already has title and equity. That can mean better terms than a cash-out refinance.
Common real-life scenarios needing an owelty
- Divorce buyout: A judge awards the home to Kate. William receives an owelty lien for $600,000. When Kate refinances or sells, $600,000 (plus any agreed interest/fees set forth in the divorce decree) is paid to William at closing.
- Sibling co-owners: Jane and Kim, two siblings, inherit a home from their father's estate. Jane wants to keep it. Both sign an owelty agreement and deed so the Jane owns 100%, and Kim holds an owelty lien until paid.
Homestead, Priority, and Why Recording Matters on Owelty Deed Matters
Because Texas homestead rules are strict, not every lien can touch a homestead. An owelty of partition is one of the few recognized exceptions. The law allows it precisely because it promotes fairness between co-owners when the property itself cannot be divided. But that protection is only as strong as the paperwork. If the deed, agreement, or deed of trust is ambiguous, recorded late, or never recorded at all, you risk disputes about whether the lien exists, whether it’s valid on a homestead, and whether it has priority over other encumbrances. Clean drafting and timely recording are not only formalities but they are the essential to enforceability.
Payoffs, Releases, and “Surprise Owelty” Problems
From a practical perspective, the owelty lien behaves like any other recorded lien: it shows up on a title commitment, must be paid according to its terms, and must be released of record after payoff. Failure to record a Release of Lien can stall a sale or refinance just as surely as an unpaid judgment. One unpleasant scenario arises when the only mention of an owelty sits quietly inside a divorce decree and was never reduced to a separate, recorded deed and deed of trust. Years later, the owner—or the owner’s heirs—discover it when a lender refuses to close without addressing the lien. The fix is possible, but it’s slower and costlier than doing it right the first time. You will need to obtain the proper payoff figures, arrange signatures, and record the missing instruments and release, etc. Seeking legal counsel to ensure that an owelty lien is property formed and filed is paramount.
Is an owelty lien only for divorce?
No. It’s common in divorce, but any co-owners (siblings, business partners, friends) can use an owelty to fairly buy out another’s interest.
Does an owelty lien survive if the owner dies?
Yes. Until it’s paid and released of record, the lien encumbers the property and must be addressed in probate or at sale.
Can an owelty amount cover more than equity?
It can. Parties sometimes use it to secure specific obligations (e.g., attorney’s fees, debt equalization) if stated in the decree/agreement.
Is an owelty refinance a cash-out?
Often no—many lenders treat it as rate-and-term, not cash-out, because the borrower already owns the property and is equalizing equity (confirm with your lender).
What if the home is underwater?
You can still structure an owelty, but you’ll need lender/title sign-off and a realistic plan—sometimes a sale is the cleaner option.
Common risks when signing an Owelty of Partition Deed?
Qualification & appraisal risk. The staying owner must still qualify for the new loan, and the property must appraise high enough to cover the existing mortgage plus the owelty amount. If either fails, the plan can collapse and force a sale.
“Hidden owelty” surprises. Sometimes the only mention of an owelty is inside a divorce decree and no separate deed or deed of trust was recorded. Owners discover it at refinance or sale, delaying or jeopardizing closing until payoff terms and proper recording are resolved.
Priority & homestead pitfalls. If documents are vague, drafted incorrectly, or recorded late, the lien’s priority can be disputed, and homestead validity may be challenged. Title companies may refuse to insure until issues are cured.
Release problems. After payoff, the lienholder must sign and record a Release of Lien. If not, the lien lingers in the records and can block future refinancing or a sale.
Lender & investor variability. Not all lenders treat owelty loans the same. Some insist on purchase-type treatment or impose overlays (e.g., higher equity, fees, or conditions). Do not assume rate-and-term terms—obtain written guidance.
Tax, insurance, and timing issues. Property tax prorations, insurance endorsements, and payoff timing all affect net proceeds and closing. Poor coordination can trigger extra costs, re-disclosures, or missed deadlines.
Underwater properties. If mortgages exceed value, an owelty may be unworkable without additional cash or a negotiated sale; lenders and title may not insure a structure that can’t be paid off cleanly.
Here at Wilson Whitaker Rynell, our divorce attorneys will ensure that you are supported through every step of the way with the expertise and compassion you deserve.
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