Leases and Encumbered property

Please help me understand where the money ends up in this following scenario.

Before we were married, my wife managed to loan her ex-employer a significant amount of money-
and he never paid her back. He later admitted this in court and judgment was rendered against him. Afterwards he told her she would never see a dime .. And so it goes. He "operates" under a number of LLC's so she liened the only property solely in his name, near 100 acres in Ar.....g County, PA. At the time there were (2) bank mortgages recorded before her lien.

Gas company #1 came along later and recorded a Memo of Lease, but apparently no money changed hands and no drilling ever commenced in this area. Asking the gas company what they could tell us at the time an employee mentioned maybe the liens were in the way?? But they really weren't interested in talking to us about it, and I understand.

Gas company #2 then comes along last year (2014) and records another Memo of Lease. This Memo was delayed in recording (ref to signing date) as Gas Co #1 had to record a Surrender document.

Two weeks after the Memo of Lease with Gas Co #2 was recorded the property went to Tax Deed Sale and sold for the Upset Price (the back prop taxes owed) with the buyers being a pair of LLC's. In this PA county all encumbrances travel with the property and are not extinguished by this type of sale. Of course the taxes are now up to date.

The verbage in the referenced mortgages does contain the clause ... "owner may not convey (re: gas/oil/etc) .... without written consent by the Bank".

So, assuming Gas Co #2 did their due diligence with title search and paid an upfront bonus per acre fee as part of the Lease Agreement, then who is this money dispursed to? It was mentioned to me that another unrelated bank handled any transfer of funds? It would be my thinking that the payment should/would have gone to the Bank (same Bank, both mortgages) as he would very likely be delinquent. To date I can find no satisfactions of mortgage recorded.

Otherwise, why wouldn't/didn't the Bank just foreclose if they received no funds. He was known to them for other delinquencies on unrelated notes. The pair of LLC's who purchased the property must know more than me otherwise they wouldn't have risked a low five figure purchase price but yet have all this potential liability hanging over them? My wife's lien is up to date after one 5 year renewal so far

I'm obviously not following how this all works. Can anyone help me understand where the money goes?

Thanks

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Replies to This Discussion

Permalink Reply by JMK on January 24, 2015 at 12:58pm

Jesse,

Thanks for the reply. Of course we've had an attorney all along. But the question I am asking now is whether or not there is a somewhat standard procedure when it comes to a gas company paying a landowner a bonus (and royalties) for leasing rights. As the gas company certainly needs to protect their interests and I assume does their due diligence with title search, wouldn't they have concern for directly paying a delinquent (mortgages and taxes + liens) landowner?

Seems as though the Bank or even junior lienholder could later come along and file to hold Sheriff sale after the gas company has made an investment?

Permalink Reply by JMK on January 24, 2015 at 4:31pm

Jesse-

Yes, a judgment exists against the person and the property. The judgment was also transferred to (2) other counties, one in which he is more active, but has no property in "his name".

I won't pretend to know what a constructive judgment is and had to look this up. But while I try and understand this concept I would think this is for naught as the lease was recorded late last year as was the Tax Deed Sale. So then wouldn't the "Bonus" money, however large or small, be long in possession of- ?? We've already been down
the Deposition road- "I don't remember, that year's Tax Return got lost, etc, ect"- and don't see reason to waste money again with that approach.

Certainly we never expected any of these funds to come our way. But we reasoned (famous last words) that surely any bonus monies would have to go to the Bank and therefore "shorten" our distance to the end goal of rightful collection. So hence my question about some standard method for gas companies to look at the landowner and encumbrances before offering up payment and to whom to pay this to.

I do keep checking Landex for any satisfaction of mortgages, but to date there's nothing new.

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