Contributed by Houston-based Attorney Syndy Davis
On loans where one owner wants to buy out the property interest of another owner(s), you can create an owelty of partition lien to complete the transaction.
In such instances, property owners do not have to do a Texas Home Equity 50(a)(6) loan. Instead, the Texas Constitution provides an alternative means to establishing a valid lien on homestead property under Section 50(a):
50(a)(3) an owelty partition imposed against the entirety of the property by a court order or 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 award of a family homestead in a divorce proceeding.
There are two different ways to create an owelty of partition lien:
A lender will want to confirm with their investor which way the loan is to be structured and make sure the title company will insure the lien as created.
It is our understanding that Fannie Mae will allow an owelty of partition loan to be treated as a rate and term refinance loan since the borrower already has a title interest and equity in the property. This is our preference as well.
Some lenders, based upon the facts surrounding the transaction, may treat the loan as a purchase. For example, on loans where there is an Earnest Money Contract and the other owners are paying part of the closing costs. Please note that even if the loan is treated as a purchase loan, there is still a 3 day Right of Rescission, because the borrower is already in title.