Replies to This Discussion

Permalink Reply by SoBoRes on July 25, 2008 at 15:21

Definition can be found here:

http://www.investopedia.com/terms/s/subordinationagreement.asp

Not sure what this has to do with leasing mineral rights other than the case of back taxes, bankruptcy etc. Hope this helps.

Permalink Reply by Renee S Cd1 on July 25, 2008 at 15:52

The subject line caught my attention - I think there's more than meets the eye, but haven't had much luck with it. On page 7 of the thread "Class Action Lawsuit Question?" there is an interesting link to redorbit.com where a bunch of folks in Fort Worth had a headache because of this clause. I would like to rule out any problems with this clause or any situation that may cause the mortgage company to receive the lease funds rather than the homeowner. Any one aware of any?

Permalink Reply by Gordon Tyler on July 25, 2008 at 16:31

Thanks,SoBoRes, I thought that was basicly what the clause meant. Renee S there are a few residences in my area that have been told after they signed that they would not be able to recieve any $. That their mortgage co. would recieve the monthly payments.

Permalink Reply by Renee S Cd1 on July 25, 2008 at 18:37

I can't see this clause being a non-issue, but it hasn't generated any excitement on this site. I'm gonna see if I can get some of the old hands to come over to this thread and talk about it. (Like your ride)

Permalink Reply by Har C2 on July 26, 2008 at 3:41

Subordination----is most commonly used in a mortgage situation.

Let's say you have a very valuable ($400,000.00) piece of land and currently have a FIRST Mortgage with Bank ABC for $50,000.00.

You want to borrow $150,000.00 from Bank XYZ. However, Bank XYZ does not want to be second in line behind Bank ABC.

You talk with both banks before closing.

You pay Bank ABC the sum of $20,000.00 out of the $150,000.00 you borrow.

Bank ABC then signs a Subordination Agreement allowing Bank XYZ's mortgage to jump in line into the FIRST Mortgage position in front of Bank ABC.

Bank XYZ now has a First Mortgage.

Bank ABC now has a Second Mortgage.


ALL OF THIS IS VERY IMPORTANT WHEN THERE IS A FORECLOSURE. Banks are always worried that the worst will happen and they will have to sue to recover their money.

First in line gets the money first in a foreclosure.

Permalink Reply by Renee S Cd1 on July 26, 2008 at 16:44

Har C2 -

Thanks so much for putting it in layman's terms. That was very helpful. Also, thanks for all your hard work on the maps. And in your honor, I will now be Renee S Cd1.

Permalink Reply by Randy on July 26, 2008 at 6:04

Ok I am going to chime in as best I can... Don't take this as a legal explanation because this gets tricky.

LEGALLY, the mortgage holder can have the right to the bonus and royalties and apply it to your mortgage (I think it's applied to your mortgage). It almost NEVER comes up, it may happen with really rotten mortgage companies that do bankruptcy financing and things of that nature. We are talking bottom of the barrel. I have had several homeowners call their mortgage company to get a subordination, and they either didn't know what it was, or didn't care and told them to forget about it. Now this may change down the road, they may wisen up and want their money.

Legally, as a lessee(operator, land company, etc), If I know you have a mortgage I have to cover myself legally with that clause, if it wasn't there, and 5 years down the road the mortgage company wanted their money, they could come after me/us. It comes into play in a foreclosure type situation, if you get that far it doesn't matter if you have the money or not cause they are going to ruin your credit anyway.

Hope that is helpful.

Randy

Permalink Reply by M Mouse on July 26, 2008 at 8:29

Randy thanks for explaning. Assuming that these are just "examples" of what can happen since not all situations are alike, my concern is if a mort co could take you bonus/royalties to pay on your note, that's fine. But once the note has been paid in full and they're still royalties coming in would those funds then revert back to you or does pmt continue to go to the mort co for the life of the lease?

Permalink Reply by Randy on July 26, 2008 at 8:40

After the note is paid there is no further mortgage and they have no claim to your property or any portion thereof.... I would think. That would require clarification from an attorney but I think I'm correct.

Permalink Reply by Renee S Cd1 on July 26, 2008 at 10:12

Thanks Randy - you're the "go to" guy.

Permalink Reply by Gordon Tyler on July 26, 2008 at 15:50

Thanks for all of the answers, I am learning a lot. Sorry for the spelling on the primary question as I had been up for almost 20 hrs on only about 4 hrs sleep. Renee S thanks for the nice ride comment, thats what I do for a hobby. I`ve always got an old Chevy around.

Permalink Reply by Renee S Cd1 on July 26, 2008 at 16:39

Gordon, I've been trying forever to get an explanation of subordination, so thank YOU for bringing it up!