I am trying to help a friend out. They are wanting to sell the mineral rights, but they have a mortgage on her entire place. I was told I needed a subordination agreement. Chase is giving me the run around...(I talked to 3 different people and they told me they had no clue what I was talking abou)t. My concern is that if the property foreclosed, I will no longer own the minerals. Am I thinking right?
State?
Hey, Charla -
I am not an Attorney, and always advise that Landowners consult one on issues such as this, but from my experience what you will need is a Partial Release of the Mortgage or Deed of Trust from Chase for the minerals to be conveyed, not a Subordination.
An Oil and Gas Company wants a Subordination of the Primary Mortgage or Deed of Trust to their Oil and Gas Lease so that the Oil and Gas Lease will survive any foreclosure or seizure. Mineral Joe might be right that a Subordination would work, but I've never seen that kind of paperwork happen.
I do not think that you should expect Chase (or any other bank or other lending institution) to release any mineral or royalty interests from under their loan without at least SOME of the purchase price going towards paying off the debt - perhaps all of the purchase price. After all, since Chase is holding the note, they effectively own the property - not your friend.
If your friend is "in arrears" (behind on their note), then that issue will certainly need to be addressed first. Any of the purchase price beyond that, your friend may be able to negotiate for with the bank.
The person at Chase you and your friend should be talking to is your friend's loan officer or perhaps his/her supervising VP. Nobody else, certainly not anybody you catch on the phone, will know what to do with it.
The best scenarios I have witnessed in these situations have been when the Seller successfully negotiated with the bank to first address any "in arrears" payments and then to apply whatever remaining amount of the purchase price towards the PRINCIPAL of the Mortgage or Deed of Trust, thus reducing their debt load and perhaps allowing for an adjustment to their monthly note.
I've only seen it a couple of times where the Seller actually received any cash in the deal, however, and in those instances the Sellers were Farmers or Ranchers that had done business with the bank for years and needed the money to tide them over a rough spot.
One Word of Caution: In every instance that I have witnessed where people negotiated with the bank or other lending institution as described above, the Seller had, or ended up having to have, an Attorney represent them in order to MAKE the bank or lending institution live up the their end of the bargain. All of the banks or other lending institutions attempted to apply the monies involved applied towards the "in arrears" monies and then towards future notes, which included Interest. Not just the "in arrears" first and then the remainder towards the Principal only, but all of the monies towards the "in arrears" amounts first and then future notes, burdened by interest.
Your friend needs an Attorney familiar with these situations to negotiate for them.
Hope this helps -
Charles
Charles Emery Tooke III
Certified Professional Landman
Fort Worth, Texas
PS: Depending upon where the subject lands /minerals are located, I may be able to find your friend a Buyer willing to offer them a competing bid to whatever you have offered them. No offense intended, as to your offer to help your friend is quite admirable, just something for you and your friend to consider.
They got a contract on their house today. So it does not look like they will need any help. Thanks for your quick response.
Charla -
I'd suggest that they reserve the minerals or as much of the minerals as they can negotiate for.
Minerals can turn out to be much more valuable than the surface, even with a house and other improvements.
If the Buyer want all of the minerals, then reserve a royalty interest. Non-Participating Royalty Interest owner don't have Executive Right, so they don't neogtiate any future leases. And they don't receive Bonus monies or Rentals. What they do get is a share of the Royalties once they start rolling.
Charles