Severing OG Rights and Have a Mortgage

I am a Pennsylvania resident with a signed lease that conveyed to us upon purchase of our property. My wife and I are interested in selling the property but want to retain the OG rights. Does our mortgage holder have any say in this? It seems like they might have an issue with us decreasing the value like that when they hold the note.

BTW, after typing the above I called a friend about this. He said he'd heard it's now illegal to sever OG rights in PA? That can't be right, is it? Else how could you sell your royalties? Gah! Being broke with no options was less confusing if not any easier. 

Any advice would be appreciated. And yes, I'll call my lawyer. Just trying to get an idea to chew on for the weekend.

Thanks.

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3rdk2fq1zz77dPermalink Reply by 3rdk2fq1zz77d on July 7, 2012 at 6:54am

If you are selling your property then you would be paying off your mortage with the sale proceeds.... your mortgage company isn't going to care one iota whether or not you sever the oil and gas rights from the surface when you deed over the property to your purchaser.  Your buddy doesn't know what he is talking about.  There is absolutely no restriction on severing surface from minerals/oil and gas. 

Permalink Reply by Mud on July 7, 2012 at 6:57am

My main concern was in the case of a default on the loan in the time between severance and sale.  Then they'd have less collateral than they agreed upon.

And yes, it seemed so ridiculous I almost didn't want to ask. Thanks. 

3rdk2fq1zz77dPermalink Reply by 3rdk2fq1zz77d on July 7, 2012 at 10:44am

You have now thrown in a wrinkle that you didn't include in your original post.  You originally implied that the severance would occur when you sold off the surface, in which case, as I stated your mortgage company isn't going to give two hoots.  On the other hand, if you sever the minerals prior to the sale then your mortgage document is likely going to have provisions that speak to the severance and yes your mortgage company is going to throw a fit because you pledged "everything you own on the property" when you took out the mortgage, both surface and minerals.  You cannot sever the surface from the minerals if you intend to retain both the surface and minerals... its a little legal premise called merger of title.  For example if you and your wife own the property now (presumably in Joint Tenancy) then you cannot sever the minerals into you and your wife's name.  On the other hand if you wanted to put them your childrens name you could (again assuming your mortgage company allowed you to).  Severing the minerals at the time of your anticipated sale is perfectly fine and doesn't bring merger of title into play. 

Permalink Reply by Mud on July 7, 2012 at 11:35am

You're right...that was unclear.  Thank you for following up. It is very helpful.

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