I was asked to sign deed in lieu of foreclosure papers, but had many questions about future issues. Today, I was told that since the property has a gas and oil lease, the mortgage company wants to accelerate foreclosure. The papers were never submitted. Would they have approved it had they been submitted?
You ask two questions "How does oil and gas lease affect deed in lieu of foreclosure?" and "Would they have approved it had they been submitted? If by "it" and "they" you are referring to the "deed in lieu of foreclosure papers" that were submitted for your signature, the second question can only be answered by a mind reader. The lender may have changed course because of legal advice it received, because of internal policy changes or any of a number of other reasons. This is rank speculation but it is possible that the bank's change of course was influenced by the enrollment of House Bill 2207 (see attached link) which, among other things, "establishes that an oil or gas lease covering real property subject to a security instrument that has been foreclosed remains in effect after the foreclosure sale if the oil or gas lease has not terminated or expired on its own terms and was executed and recorded in the real property records of the county before the foreclosure sale." The bank's rationale may be that a foreclosure after the effective date of the bill (January 1, 2016) will not extinguish the lease but a foreclosure before that date will extinguish the lease and give the bank title to the unleased mineral interest. Again, this is rank speculation on my part. Moving on to the first question, "How does an oil and gas lease affect deed in lieu of foreclosure?" I would reply that it depends on the precise wording of the deed in lieu of foreclosure. First, I would note that a Texas appellate court has held that "A deed-in-lieu of foreclosure is not a specific type of deed, such as a special warranty deed or a quitclaim deed; there is no such deed as a deed-in-lieu of foreclosure. Morrison v. Christie, 266 S.W.3d 89, 92 (Tex. App.—Fort Worth 2008, no pet.) In other words, a deed is a deed is a deed and a deed covers what it covers. Without actually reading the deed, no one can tell you whether the deed covers or affects the oil and gas lease.
Legal disclaimer: John Bonica is licensed to practice law only in Texas. His response is not legal advice and does not create an attorney/client relationship. The response is only intended to provide general information. The question may not include significant and important facts that would change the response. You should confer with a local attorney for competent legal advice.
An attorney would need to see all of the documents related to the property in order to address the legal issues. As to your approval question, it is unclear and is not the type of question that can be answered on this list serve because it is fact specific involving a 3rd party. You need to hire an experienced oil and gas attorney to advise you in this situation.
A deed in lieu of foreclosure is still just a deed and thus does not automatically extinguish the lease. On the other hand, a foreclosure may extinguish the lease. It would depend on whether the lease has a superior or subordinate lien to the mortgage lien. I would recommend having an attorney review the relevant documents to verify priority of liens, terms of the lease and whether the lessee must consent to any sale of the property.
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