I just got a letter from Chesapeake to sign a Subordination Agreement for my mortgage.  Anyone have any input concerning this?  It states that if I default on my mortgage my royalties will be sent to the bank.

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I received a form from my mortgage company a few years ago about this.  I called them and they said Chesapeake required it and they were just requesting my signature to validate it.  I didn't sign because I didn't fully understand it, but now that we are close to receiving royalties, I assume we will be getting the same thing soon.  I have heard that Chesapeake may pay all of your royalties towards the mortgage if they do not have it.  My concern was that if I wanted to refinance in the future, would the subordination cause problems? 

Have you received royalties or division orders?  If not will you  soon?

I didn't receive royalties or division orders yet but they are building a well NW of me.  I am not going to sign it either.

The Subordination is needed because your Mortgage was taken before the lease and in order for the lease to still be valid in case of foreclosure.  Signing the Subordination does not cause the royalties to be paid to the bank, it is solely for the purpose mentioned above.  The oil company must get these signed so that your money is not held in a suspense account once your well is producing.  It is basically done so that in case of foreclosure, the oil company's lease is still valid.  You can read more information here- 

http://oilandgas.uslegal.com/2010/02/26/subordinations/

I hope that this helps give you more information on this issue.

Others would know more but I think it is common.

Penna is a ?/ state where unless specified, if a morgtagee defaults

thee mineral estate remains with the former surface owner.

Thus banks with old mortages need the agreement for protection.

 

I too have recieved this paper and did know what it was,BUT, alot of Mortgae companes Will NOT sign these agreements.  Mine refused because they say that it gives the Gas Company rights to take the gas and make money even if the property is foreclosed on.  I had to call Chesapeake back and was sent another form called a Concent of Lienholder.  This form just states that I have entered into an agreement with Chesapeake to lease my gas rights and that my Lienholder has been notified that I am receiving royalties.   Why doesn't Chesapeake just send everyone one of these forms instead of the Subordination from, which most mortgage holders won't sign?

Did CHK accept the consent of Lienholder form after you got it signed?

Sara is correct. What a landowner should be receiving is a concent form request. I had this all cleared up by my attorney. The reason for the concent form is in order for the driller or leaseholder to request a subordination the owner of the property must concent to the request. It comes down to protection incase of foreclosure. If the mortgage predates the lease the bank has no obligation to honor the lease if the property is foreclosed. What the subordination does is have the bank acknowledge the lease and agree to keep it in good standing should the [pproperty be foreclosed on. Obviously if the property is foreclosed on while royalties are being received and the lease is voided by the bank because of foreclosure the entire unit would be jeopardized until a new lease can be secured.

 

I have seen banks deny these subordinations. In those cases the leaseholder files a notice of foreclosure. This notice would give the leaseholder the option to negotiate to keep  the lease in good standing or to direct royalties to the mortgage company to avoid foreclosure. I have also seen banks foreclose and reserve the oil and gas rights when they resell the property.

 

IMHO there is no downside to the landowner in signing a concent for subordination.

Is there any conection to subordinations and landowners being included in huge blocks of leases recorded by CHK on landex? I've seen our land listed in other twps besides where it actually is along with dozens of others, i've also witnessed a loan denied because of a "lein" that the landowner never knew was there, this was cleared up by the way. Just wondering.

Doug, there is no connection.  Any tract that has a mortgage that is still valid and was taken before the lease will have to have the mortgage subordinated.  Usually the companies are going to focus on the tracts that are included in a unit so that they can clear up any title defects before royalties are paid out.  

Doug - I believe what you are seeing are a number of bundled leases that a operator (CHK in this instance) is using as collateral to acquire capital.

Thanks Tug, i knew that, but wondered if the might be a connection between the two. By signing the subordination do they have the right to do that without landowner consent is what i'm getting at. Most landowners never know their mortgage is bundled into those groups, some until they try to get a loan, most banks etc are on top of this now. Another case where the leasor and lessee should have better communication.

The oil and gas company is actually using their interest in your gas rights obtained by entering into a lease, not your mortgage. Basically they are securing a mortgage using your leased oil and gas rights.  Your lease is referenced in the same way your property would be if you yourself refinanced the same property. Many don't realize it but the oil and gas company has 80%-87.5% interest in their subsurace and that interest is what the gas company uses to secure a loan.

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