Replies to This Discussion

Permalink Reply by The_Baron on December 2, 2008 at 4:01

More than likely the mortgage company would want to sell the forclosed house. This assumes that the mortgage company buys the home at sheriff sale. Should the home go to another buyer, it would be up to the buyers descresion on what to do with the renter, as it would be his/hers new property.

In any event KB is correct, without a subordination the renters lease would be wiped out by the foreclosure process, this is why tge oil and gas companies need to have their leases subordinated.

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Permalink Reply by Grice on December 2, 2008 at 3:59

Keep in mind that I am still trying to comprehend the demand for subordinating mortgaged property.

In your scenario, the property owner has not severed its ties with the mortgage company. The property owner would still be obligated to honor the mortgage, regardless if he leases, or sells such lease to another. Should the property owner face foreclosure, the lease owner would need to petition the mortgage company for a subordination from the property owner's obligations, if they wish to maintain the lease during and after foreclosure. The subordination agreement would be contracted between the lease owner and the mortgage company, and have no burden upon the property owner.

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Permalink Reply by Dion Warr, CPL on December 5, 2008 at 11:44

KB:

I have seen this done, if it helps for the purpose of discussion:

If it is financially advantageous to do so, begin the search to do a refinance of your mortgage. Prior to the commitment process in the refi, simply deed the minerals to the property to another entity solely controlled by the mortgagor (e.g. Bob and Sue convey their minerals via mineral deed to a viable established entity, the newly created Bob N Sue, LLC), and file of this of record in the courthouse.


*** NOTE: it would be important to do this prior to the commitment paperwork being executed, since you would have to give the bank the time to have their abstractor update your title, with the deed filed of record. If you wait until afterwards, you would have to disclose same to the institution as a subsequent act, according to most standard commitment paperwork.


Next, sign the commitment paperwork, and wait for the refi to process. Once you clear the title process and get to the closing, you are home free. The mineral deed primes the new mortgage (which is generally dated as of either the commitment date or the closing date). Bob and Sue's old lender's sole recourse against them, which would be to accelerate the repayment, is rendered toothless, as they will be repaid via the payoff on the refi, and the new lender is powerless to enforce any provisions (since they signed off on the title, or their title attorney did).

You could attempt to have the new lender hold your minerals out of the new mortgage, but good luck. They would know that your minerals would have value too, and probably would not write such a mortgage.

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Permalink Reply by P.G. on December 5, 2008 at 12:32

What would happen to a new owner if a mortgage company allowed itself to be subordinate to a mineral lease and then had to foreclose and sell the property. Who would own the minerals? Would they transfer to the new owner?

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Permalink Reply by P.G. on December 5, 2008 at 14:44

It's just a hypothetical. Let say details were typical of what's being used now.
If the mortgage company agreed to become subordinate and it's agreed they get the royalties if the owner defaults. I am assuming the mortgage company would sell the property if they foreclosed because of a default. Would the lease still be in force? For whom? Would the new owner from the foreclosure sale get the minerals and royalties? Would the previous owner lose his mineral rights if he defaulted and the mortgage company seized the property but they were subordinate to a paying mineral lease? If the royalty payments were enough to cover the mortgage, would it still be a default? Sounds like it would be a mess!

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Permalink Reply by P.G. on December 6, 2008 at 4:25

So should the mortgage company be allowed to profit by becoming the lease owner if the borrower defaults? (lets assume there is enough land, say a few acres with the house)
Wouldn't that be an incentive for the mortgage company to put a borrower into default for any possible reason?

(have you ever heard of this case?)
I remember seeing this live on the news!
Tony swore the banker had done things to force him into default (like steer buyers away) so they could get his property.
(it got ugly)

http://en.wikipedia.org/wiki/Tony_Kiritsis

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Permalink Reply by carl hadden on December 6, 2008 at 2:49

They are a bunch of, lets say keep your wallet close

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