When a property is owned by two people, and one sells to the other with owner financing, the security for repayment would normally cover the property that was conveyed. The property conveyed was only an “undivided interest” in the property, most commonly the 50% interest in the property of a co-owner. Mortgage lenders don’t really like having only a part of the property securing their loan. (go figure)
Texas Owelty laws allow the lien created by a financed conveyance between co-owners to cover the “entirety” of the property. The Texas constitution specifically permits these liens against Texas homesteads.
Normally, when a mortgage lender is financing this transaction, the owelty lien is transferred to the lender in the owelty deed in essentially the same way a vender’s lien is given to the lender in a warranty deed.
Owelty liens can be combined with a refinancing of the existing mortgage. This allows a divorcing spouse to buy out the ex and roll that together with a refi to take the ex off title and off the loan.
Owelty is pronounced like the letters “O L T”.
