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Permalink Reply by P.G. on July 24, 2008 at 4:47

Couldn't one assume mineral rights could be an encumbrance on a property? What if there had been a lease signed that gave the o&g companies rights to explore and drill as they wished on the property?
If someone defaulted on the mortgage and it went into foreclosure about the time the o&g company started doing it's thing to the property, couldn't that adversely affect the saleability of the property?
One would think the mortgage company would be a bit concerned huh?

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Permalink Reply by Liz Cb2 on July 24, 2008 at 5:30

Encumbrances would be something like a driveway over the property line, fences on someone else's property, things like that that would become an issue. Basically, things that may have been constructed that were in easement areas or over property lines. A lot of times these things are done after another person buys the property, not necessarily with first time owners. This happens especially with older properties that have gone through many owners and changes.

Mortgage companies are concerned with maintaining the value of the property and making sure they have a clear title in case of foreclosure. They've loaned money in order for someone to purchase a home and want to be sure they can reclaim that property and sell it if it becomes necessary.

I'm not an attorney but in my opinion it would not have any effect to the "saleability" of the property. Mortgages are separate issues from oil and gas leases. Mortgages are attached as first liens to the house and lot that they have loaned money for. That home and lot or acreage is used as collaterol to secure the mortgage, not what's below the surface. It wouldn't effect title; however, it could be an issue for the mortgage company's attorney to determine whether or not they could seize the royalties (if any) in order to pay off the defaulted loan.

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Permalink Reply by P.G. on July 24, 2008 at 6:02

Yes, the M lease wouldn't make any difference in the title but could affect saleability. I mean it could affect the marketing of the property when roads and wells are being cut through the property that weren't there when the mortgage was first obtained. That would seem like it would be a concern to a mortgage company who had to foreclose to recoup their money, I'd think.
I saw some acreage for sale listed in the paper where the minerals are reserved and upon some investigation, the sellers will pretty much to be able to come in anywhere on the property at any time and build pipelines, roads or what ever to extract minerals.
That to me makes the property less attractive. At least worth less to me than one that did not have such a clause.

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Permalink Reply by Liz Cb2 on July 24, 2008 at 6:21

I agree with what you're saying but there is no law that says that a homeowner has to contact their mortgage company prior to signing an oil and gas lease. They have every right to do so.

In a sense it's no different from someone destroying the inside of the home while they're in it. Certainly, this is not what a mortgage company would want to see; however, there is a certain amount of risk in anything where money is concerned. That's the nature of the beast.

As I said in an earlier post, there are all sorts of variables to every situation. Basically, it is up to us the homeowners to be responsible human beings and hopefully make the right decisions.

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Permalink Reply by P.G. on July 24, 2008 at 6:32

Yes, I assume the home owner can sign a lease but of course there's a lot of fine print on those mortgages where that may be an issue. Perhaps trigger an acceleration clause.
My position was prior to a mortgage company putting up their money.
Just seems like they would be concerned if someone could de-value the surface. And such a document was recorded that would allow it.

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Permalink Reply by Liz Cb2 on July 24, 2008 at 8:21

The mortgage company would send out an appraiser to take photos and do "comps" on the property and base their decision to loan money on the appraised value of the property prior to approving the loan and processing the mortgage. Normally three "comps" are required to make the sure value of the home they're loaning money on is appropriate to the sell price of the home. There are rare occasions where a seller is willing to pay more than the appraised value of a home but very few.

Every mortgage company does things a little differently and some are more strict about what they require than others. I can't speak for what all lenders want and what others might waive.

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Permalink Reply by Renee S Cd1 on July 24, 2008 at 7:02

Are there types of mortgages where the revenue from leases would have to go the mortgage company? Most of us have "fee simple" mortgages, what about "bond for deed", etc.?

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Permalink Reply by Liz Cb2 on July 24, 2008 at 8:23

I know of no mortgage where revenue from leases would have to go to the mortgage company. The responsibility of the borrower is to pay their mortgage premiums timely. In the instance of foreclosure the mortgage compay may exercise its right to foreclose. I would think it conceivable for a mortgage company to pursue any means possible for collection if a home is sold through foreclosure and it doesn't bring enough to satisfy the mortgage.

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Permalink Reply by P.G. on July 24, 2008 at 8:50

Here's something interesting!
Apparently there could be issues between leases and mortgaged property.

Mortgage Company Agreements Hold Up Mineral Drilling Royalties for Some: Fort Worth: Agreements With Mortgage Lenders Required for Payments

http://www.redorbit.com/news/business/1058664/mortgage_company_agre...

"We want to pay the royalties, we don't want to suspend them, but we have to protect our interests," Mr. Hood said.

If a property without a subordination agreement goes into foreclosure, the lease would be voided and a drilling company could end up paying tens of thousands of dollars to a new owner, Mr. Hood said.

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Permalink Reply by louisiana lady on July 24, 2008 at 10:49

All leases have the subordination clause with regards to mortgages and it is usually in the warranty of title paragraph. Most leases require a subordination of mortgage at lessor's expense in a form acceptable to lessee prior to payment of royalties.

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Permalink Reply by Renee S Cd1 on July 24, 2008 at 11:59

Can you help me understand, will this clause effect only those who go into foreclosure? Who will it effect?

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Permalink Reply by P.G. on July 24, 2008 at 9:02

Another thought
If some one bought a home with a piece of wooded property using a mortgage, could they sell off the trees after the closing without telling the mortgage company?
How about the buildings like the barns? Would minerals be any different?
If one mortgaged a property that included the minerals, wouldn't the minerals also carry a lien against them just like anything else of value?

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