Replies to This Discussion

Permalink Reply by jkw3 on August 26, 2008 at 0:33

Though in Louisiana, mineral rights ( a "mineral servitude") are not considered actual ownership of the minerals but an exclusive right to explore for and produce minerals, they are still part of the ownership package which are subject to a mortgage.

The only situation where the mortgage lien would not attach to the minerals is where the lessor owns only a mineral servitude and no surface rights and the mineral servitude was created before the mortgage.

Unless there is language to the contrary in the mortgage, the lien created by the mortgage applies to all rights tied to that property including mineral rights. Unfortunately it does not matter whether there is a prohibition against surface use for oil and gas operations or any other industrial use.

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Permalink Reply by Grice on August 26, 2008 at 0:43

Thank you.

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Permalink Reply by Grice on August 26, 2008 at 2:47

After reading your response, I was curious as to how a mortgage could retain mineral rights without written notice of such. In searching, I found two things that I would like to get your opinion on.

RS 9:1112.
Persons holding immovable property in common may agree not to alienate, encumber, or lease the property held in common for a specific period of time, not to exceed fifteen years. This agreement must be in writing.

This would lead me to believe the mortgage contract must specify (in writing) if the mineral rights are unable to be leased without consent from the mortgage company.

RS 9:1113
If immovable property is susceptible of partition by sale and a co-owner owning an aggregate interest of fifteen percent or less of the immovable property petition the court to partition the property, the court shall allow the remaining co-owners to purchase at private sale the petitioners' shares at a price determined by a court-appointed appraiser.

Each remaining co-owner shall only be entitled to purchase a portion of the property being sold equal to his pro rata share. Each remaining co-owner shall have thirty days, sent by certified mail, in which to file a notice to exercise his option to purchase his pro rata share of the property being sold. The filed notice, which shall be served on all parties, shall be considered a fully binding contract to purchase the property.

Upon the lapse of the thirtieth day, any co-owner who has failed to timely exercise his option to purchase the property shall relinquish his right to purchase his pro rata share.

Once a purchasing co-owner relinquishes his right to purchase his pro rata share, he shall not be entitled to file any subsequent notice to purchase in the pending action.

This leads me to believe that the mortgage company has the option to purchase the mineral rights before any other. If the mortgage company does not respond within 30 days, or does not wish to purchase the mineral rights, then the remaining owner(s) will have to right to lease to a third party (O&G company).

Note: I removed parts of the laws, simply for the purpose of increasing effect.

I want to thank you for helping me understand more about this subject, and I look forward to your reply.

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Permalink Reply by M. Mcwilliams on August 26, 2008 at 8:07

These laws have nothing to do with rights of mortgage holders, they pertain strictly to co-owners of the property. A mortgage company is not an owner of the property.

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Permalink Reply by Grice on August 26, 2008 at 8:12

Thank you for that clarification. I was under the (wrong) impression that a lender becomes non participating owner of the property.

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Permalink Reply by M. Mcwilliams on August 26, 2008 at 8:52

No, the concept is that of a "security interest", in that the mortgage document gives certain rights and privileges over the property to secure the performance of the underlying contract. The underlying contract is the promise to pay the loan for the purchase of the property.

Permalink Reply by smith1 on August 26, 2008 at 1:36

My husband and I have our mortgage with Wells Fargo, signed with Petrohawk, My understanding is that they can not do this, they don't own the minerals. We have been with Wells Fargo for, maybe, 6 years.

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Permalink Reply by smith1 on August 26, 2008 at 1:37

By the way, how would Wells Fargo even know about you signing a O&G lease? Just wondering.....

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Permalink Reply by P.G. on August 26, 2008 at 4:42

Don't most mortgages have a clause in them prohibiting transferring any interest in the mortgaged property without their permission or approval?

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Permalink Reply by Rick on August 26, 2008 at 7:10

Homeowners beware, this hasn't affected me yet but I am financed with Wells Fargo so we'll see soon enough I'm sure. Here's just a little insite from my corner; I haven't created a discussion on this for fear of opening up a can of worms but I have a acquaintance that has worked in Real Estate and Mortgage law as well as other specialities for over 30 years. I ran into him back in June at an area resturant and while chatting the subject of the HS activity came up. He mentioned then that he could not believe that the major mortgage companies hadn't already started persuing this and predicted that homeowners could expect it to happen soon. He said that he feels that there will be issues with most of the large nationally known mortgage companies because they do this in any state that allows it and they have plenty of money and plenty of attornies to fight for them.
His opinion is that they probably have legal grounds to base it on in LA and depending on the specific case, the majors like Wells Fargo will most likely be able to affect you and the money you get from leasing if they choose to persue it.

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Permalink Reply by jkw3 on August 26, 2008 at 16:30

Congratulations. Some of you are beginning to realize the complexity of ownership of land and minerals. To me that indicates that this site may be beneficial to the smaller tract land and mineral owners.

If you have already received your bonus, don't worry. I don't think there is anything that your mortgage holder can do to take that bonus away from you. The problem will be in disbursing royalty payments.

The comments of some of you concerning Wells Fargo are of great concern. Traditionally, the large mortgage holders, such as WF, were pleased to see bonus and royalties as an additional source of income to their mortgagors. This additional source of income would increase their mortgagors' ability to pay their mortgage note. It was a win-win situation for both parties.

With the crisis situation the mortgage holders now find themselves in (partially, if not substantially because of their own aggressive policy of marketing large mortgages to those who could not afford them), these mortgage holders are looking at any asset they can control to limit their lossses.

So they have a lien on your minerals. That doesn't mean that you can't lease or sell. It just means that if you do the interest the buyer or lessee acquires is already subject to a mortgage lien. That makes the interest of less value to the oil and gas companies or any assignee of the mortgagor. It also means that there may be an issue with disbursement of royalties.

Traditionally a "prudent operator" would not pay royalties to a lessor/mineral owner subject to a mortgage lien without a release (which the mortgage holder usually will not do unless the debt is satified) or a subordination of the mortgage lien to the oil and gas lease (which they would do for a reasonable provcessing fee). The operator risks paying twice - once to the royalty owner and once to the mortgage holder - if the mineral owner/lessor defaults on his mortgage. That was a risk (and may still be a risk) that the operators may not be ready to accept. Also, it is a valid reason to suspense payment of royalties.

But, the CHKs and HKs (and others) have been acting in ways that don't fit the traditional actions of oil and gas operators. They are paying unbelievable and unprecedented (except in the Barnett Shale) bonuses. They have accepted higher than normal royalties in leases. Some have tried to freeze out other competitors by buying out abstract plants and closing them to the public (CHK). They have announced in a county recorder's office that anyone paying less than $XX,XXX per acre ought to just leave the county. So will they do something unusual such as pay royalty owners who are subject to mortgages without subordinations from the mortgage holders? It's not beyond the realm of possibility, but we'll see.... but if this does develop into a problem, it is one created by the mortgage companies not the oil and gas companies.

"That's my opinion, I could be wrong..."

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Permalink Reply by Pat on August 26, 2008 at 16:48

I highly recommend that anyone that gets bonus money big enough pay off their mortgage in full with the money. I paid off my house two years ago (took 7 years I had 30 year note) without O & G money. I could work part time at Wal-mart and be ok because house is paid for. Use the money to get out of debt and stay out of debt.

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