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Mineral Rights? Some lender just do not understand.

Real Estate Agent with Realty Professionals, Inc.

First of all, I am located in Searcy, Arkansas and we have been experiencing a great deal of interest in the Fayetteville Shale, drilling for natural gas.  Our county is one of the primary areas of exploration and that has created a great deal of interest in the owners that are selling their property to retain (keep) their mineral rights when they sell their surface rights.  In Arkansas, mineral rights are superior to surface rights.  Meaning, the surface owners can NOT restrict the mineral owners from gathering any and all minerals from the property.  There are state laws that mineral owners do have to adhere to though. 

With all that being said.  I have a listing under contract and the seller is retaining the mineral rights.  I get a call from the selling agent this morning that states that the lender the buyer is using will not allow the minerals to be retained on a FHA loan.  I told her that I have experienced another lender in town that wanted to put restrictions on the seller in the Warranty Deed that could not be kept by the seller.  I noticed that the Warranty Deed was pretty long and read it before the Sellers signed it at closing (this is another reason why you as an agent needs to attend the closings with your clients).  As you guessed, I did not allow the Seller to sign it unless they consulted with an attorney.  The Warranty Deed had restriction on it not allowing a pipeline, drilling activity or even access to the subject property.  The subject property already had a Mineral Lease on it and there were royalties being paid to the seller as well.  There is/was NO WAY the seller could agree to the terms the lender injected into the Warranty Deed.  I had a long discussion with the lender and they removed it.  Later it came to my attention, it was the local bank putting that restrictions on the Warranty Deed, not the secondary lender that was buying the loan.

Lenders need to understand that there are many properties that are sold today and many years ago that DOES NOT have any mineral ownership.  That if the seller does own the minerals, they may have already entered into a lease with a gas company and they cannot restrict their activity.  Then you also have to take into account that you as the land owner may not have wanted drilling activity in your section and the State Gas And Oil Commission Integrates your Section and you are forced into a mineral lease.  Lenders, if you do not want to lose business, please understand these things.  As I told that selling agent this morning, there are many, many properties that have FHA loans on them that there is NO mineral ownership.  Please stop trying to re-negotiate the deal.  The buyer is willing to accept the property without the mineral rights and if the appraiser doesn't acknowledge that the property is effected by it, then let it be.  As a matter of fact on this particular transaction, 1/2 of the minerals were retained about 60 years ago so they are not even on the table.

I know this is different to the normal transactions.  But, when you are dealing with something different, learn about it so you can make an educated decision.  I, as an agent, wasn't dealing with these things until about 3-4 years ago either.  I have had to seek education and many many meetings on this.  I know when I started in the real estate business we had this come up in title work where the minerals were retained by a previous owner and I told them that mineral rights are superior to the surface rights and what my understanding was on it.  Most of the time, that wasn't an issue but I did have a 40 acre sale fall through because the buyer understood the risk and didn't want any part of it.  Anyway, I have figured out there is no boring day in real estate and you have to always be learning.

My name is Larry DeGroat and I am a Realtor at Realty Professionals, Inc. in Searcy, Arkansas 72143 and I sell new homes, existing homes, commercial property, farms and land as well as manage and own rental properties. If you are looking for real estate for an investment or a home, I will be glad to assist you! You can call my personal cell number at 501-278-7659 or e-mail me at Larry@Searcy4Sale.com. Visit my website at http://www.searcy4sale.com if you are looking for Searcy homes for sale or other areas.  

Barbara S. Duncan
RE/MAX Advantage - Searcy, AR
GRI, e-PRO, Executive Broker, Searcy AR

Larry, sounds as if you had an exciting week!  You'll have to tell me all about this later.

Jun 12, 2009 03:03 PM