IF YOU SIGNED YOUR GAS LEASE, YOU CAN NOT GET A HOME EQUITY LOAN OR BUY A HOUSE WITH THE LEASE SIGNED BY ALMOST ALL BANKS BECAUSE THEY WILL NOT LEND MONEY ON THOSE PROPERTIES. JUST RECENTLY FOUND OUT ABOUT THIS
While it is true that O&G leases complicate the mortgage process, leading many banks to avoid leased properties altogether, there are still many banks out there willing to play in this arena. The risks are higher, so your rate may not be as low as someone without a lease, but loans are available. The biggest problem is that Fannie Mae and Freddie Mac purchase nearly every mortgage loan written in this country (something like 90%, as I recall) and they do have some serious issues with leased properties. The key to getting a loan is working with a local bank (preferably one familiar with O&G, and with whom you have a good relationship) that has the capacity to hold the mortgage, rather than sell it to Fannie or Freddie.
Here is an article related to the matter. http://marcelluseffect.blogspot.com/2011/11/gas-leases-conflict-wit...
The reverse also holds true. Some O&G's want your bank to subordinate any existing mortgages (thereby granting the O&G first rights if you get foreclosed on). If your bank won't comply, that O&G may pass over your property. This is why many leases state that the O&G, at its discretion, can pay off your mortgage and force you to pay them back from your bonus and/or royalty proceeds.
Hope this helps.
Did you just join to share this lovely tidbit? This has been discussed here in the past. Once again let's not panic without having all the information. Ever wonder how those folks in TX ever conduct a real estate transaction? Obviously there are lenders that are very experienced in dealing with gas and oil leases. Even here in the PA and OH, lots of acreage has changed hands with oil and gas leases in effect on the financed property. THink about it a bit, in the recent leasing boom, many landowners have learned they have old leases that hold their properties - and most of those properties have been bought and sold numerous times. In other words most banks and lending institutions paid no attention to previous or existing leases. There are dozens of shallow wells on properties which have change hands with zero issues.
Let's take it to the next logical step - as Michael mentioned Fannie Mae and Freddie Mac may have issues with properties with gas leases. They also do not finance or buy mortgages on any property over 5 acres. Since properties 5 acres and under will never have a pad their worries are unfounded. On the other hand if the five acres of land is next to a 300 acre farm - that 5 acres may end up next to a pad. And Fannie Mae and Freddie Mac have no control over such, nor does the property owner, leased or not. So until FM and FM etc not only don't lend to lessors but also don't lend to anyone who lives next to someone with a lease (imagine the due diligence involved there.... must title search every other land owner in the section etc) this is all smoke.
Anyone who is purchasing properties that actually may have a pad isn't using those cookie cutter mortgage lenders/banks as they don't finance such properties (acreage) because they can't sell the mortgage. Guaranteed there are plenty of lenders that are going to more than willing to lend to those in heavy leasing areas.
Good insight Dr J. Farms and tracts of land with active leases get sold all the time. How many of those are cash deals? Very few, I'm sure.
BTW - Speaking from personal/professional experience, Fannie and Freddie will buy mortgages on properties in excess of 5 acres under the right circumstances. They don't like to, though, and I'm pretty sure they won't buy a "working" farm of any size, even if 5 acres or less. The main thing is, get to know your banker. A good relationship (regardless of how big/small a player you are) will open doors that may otherwise be closed.
John, Just as Michael said. Go to a local bank. We just got a equity loan and the bank thought it was great we might be leasing. You have to remember if a bank doesn't have much funds on hand or a lot of REO paper it can limit what they can loan. It can just be the easiest excuse they have to politley say no. They are not going to say we are only in a position to loan to the top 1/2 % of borrowers who are not borrowing anyway.
This is not true. We just refinanced our home with an additional $30,000 added on for home improvements. Our rate was originally 8%. Our new rate is 4%. We are almost four years into our five year lease with Cabot. Our home appraised 25% higher than BEFORE home prices collapsed. We told our bank about our gas lease when we applied, and all they wanted was a copy of the lease. There was absolutely no problem with our refinance due to our gas lease.
Lori, Do you mind if I ask what bank you went with? We were told by 5 separate banks that they would not accept a property with a gas lease. I am in Susquehanna Co as well. Thanks, Dave
I was faced with a lender that demanded all royalties till the loan was paid in full. The Clinton well was already in progress and I said no. Well next thing was the driller called and said hey we have a problem, really? I said that the demand by the loaner was very rude I was current in my loan with no late payments. Well we need to do something he said. I said you know the banks you set it up. Within a 1/2 hour he called back, went to another bank, they paid off the loan , no big closing fees no bull crap closed the next day and life went on!
i have a lease and just got a loan....look around there are banks that will work with you!
Is demanding all royalties till the loan is paid off even legal? I would put in a few phone calls and call them on it. Sounds like someone had a personal vendetta (or jealousy) against leased land owners.
Our bank is Penn Star, Lenox Branch. It was never an issue. In fact, some of the people working there have leased property as well.
Thanks, I though about trying them but after being told by so many others I just assumed it would be the same response. I will give them a call as well. Dave
I just got a home equity loan through PNC and they never asked or cared. Im sure it showed up when they ran title.