Owelty Liens: An Impediment to Closings & Issuing Texas Title Insurance

Since it is October and all the ghouls are out, why not talk about owelty liens? For many, the word is chilling and, at the least, a nuisance to most people in the real estate and mortgage industries that can prevent your closing. The most common use for an owelty lien is in the instance of a divorce. I know in a perfect world, we would like to think that a divorce decree is the final say on the division of the property, but in fact, it does not. It gives us direction and an idea of how the property should be divided, but in most cases, there are several steps to be taken to clear an owelty lien before we at the title company can close your loan and issue a Texas title insurance policy. For example, a divorce court has no authority to divest a party of title to separate real estate. Eggemeyer v. Eggemeyer, 554 S.W.2d 137 (Tex. 1977). Regardless of the judge’s order awarding the property, if a conveyance document has not been filed, the property will still show vested in both parties. However, the judge may award the person divested from title an amount of money for their interest/equity in the property. Such award would allow the divested individual to file an owelty lien in the land records.

Unfortunately, such recorded owelty lien is often looked over when winding up a divorce and obtaining a release is forgotten. This is the reason owelty liens are so scary. The owelty lien resurfaces only when the divorce decree is reviewed by the title company when preparing to issue a Texas title insurance policy. At that point, there are several options to take in clearing the issue—oftentimes involving contact with the divorced spouse. Hence, clearing an owelty lien can slow down the closing process.

If your client mentions a divorce at the time the loan application is taken, a good habit to start would be asking for a copy of the complete divorce decree upfront. Once you receive the divorce decree, send it to the title company for review so they can make sure there will be no delays in closing and issuing a Texas title insurance policy. A little digging upfront will save a lot of time in the end.