Do Gas and Oil Rights Affect Modern Mortgages?
More homeowners are realizing that gas, oil and mineral rights can equate to profitable incomes. However, there are many areas where homeowners don’t own their lands’ mineral rights, but do own the underlying lands. Mineral rights include a variety of natural resources, such as coal, water, gas or oil.
Long ago, many companies purchased mineral rights and then sold the underlying lands. Retaining these mineral rights means that property owners do not have the right to exploit or extract natural minerals or resources. This is extremely common for both gas and oil leases.
State laws can certainly add to the complexity of mineral rights and mining opportunities. Restricted zoning ordinances can easily highlight areas where mining is and is not permissible. This can be cause for alarm with some mortgage lenders, as having miners work on properties can pose potential liabilities and risks. Other lenders may be more apt to embrace mining, especially if income is generated from operations, which can be applied to mortgage debts. Mortgage loans can become more complicated when homeowners sell their properties, while choosing to retain mineral rights.
Most states offer detailed information on properties’ deeds, which specifically highlight mineral rights ownership, or in some cases state that mineral rights are conveyed with properties’ deeds.
The Federal Housing Administration (FHA), which includes Freddie Mac and Fannie Mae, states that homes may not be closer than 300 feet from planned or active natural gas or oil drilling sites and new construction is required to be a minimum of 75 feet from these sites. If drilling sites are legally abandoned, the FHA reduces distance requirements to as few as 10 feet. Unfortunately, the FHA doesn’t track the specific number of mortgages that are declined due to mineral right issues and/or locations, so it’s impossible to know the exact number of declined mortgages.
The FHA refuses to mortgage properties that have title restrictions or impediments; however, they generally allow mineral rights exceptions that are waived by other lenders. For example, in many states mineral rights were sold to companies more than a century ago. Because this has become a customary exchange and no mining operations have been conducted on these properties, FHA will make exceptions and waive these regulations. However, if current homeowners wish to sell their mineral rights while their homes are currently mortgaged with FHA subsidiaries, an Application for Release of Security and a copy of pertinent leases must be given to lenders. Lenders cannot grant releases until the potential effects are thoroughly analyzed, which includes conducting assessments of property values.
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