Mortgages and Mineral Rights

Posted November 14, 2018

You may be considering selling the mineral rights to your property and questions have come up about your mortgage. You may owe a little or a lot on your mortgage—depending on how long you’ve owned your home, the terms of your mortgage agreement, and how long you’ve been paying. Does owing money on a mortgage mean you can’t sell your mineral rights?

While every situation is different, having a mortgage typically shouldn’t stop you from being able to sell your mineral rights. However it does make the process a little more complicated and add a few extra steps to complete the deal. Below we’ll explain some of the options available to you when selling your mineral rights while you still have a mortgage on your property.

Most Americans purchase their homes with a mortgage

According to the National Association of Realtors, 88% of buyers today purchase their homes with financing. Mortgages exist to make it possible for more people to buy homes—which most people wouldn’t be able to do if they had to put down all the money upfront. It’s pretty common today for people to have mortgages with repayment spread out over 10, 20 or 30 years.

A mortgage is a loan from a lender (typically a bank) where the purchased property is used as collateral to make sure the loan is repaid. Mortgages basically function in one of two ways, depending on which state you live in:

Title – The mortgage lender has full ownership of your home and allows you to live there until the loan is paid off.

Lien – You get ownership of your home and the lender places a lien on the property until your financial obligation is fulfilled.

The state of Ohio, where Gateway Royalty is located, uses the mortgage lien system.

When it comes to selling mineral rights, having a mortgage adds another step in the process because the lender has a financial stake in the property. In states where the lender owns the property outright, they also own the mineral rights. In states where there is a mortgage lien on a property, that lien is also held against the mineral rights (if they are attached to the property) and a title has to be clear of liens for a sale.

So what can you do if you want to sell your mineral rights but you still owe on your mortgage?

3 options for selling your mineral rights with a mortgage

At Gateway Royalty, we’ve worked with dozens of homeowners interested in selling their mineral rights who have still have active mortgages on their properties. As mentioned above, this is not an uncommon situation—and there are practical ways to work around it.

Here are three options that may be considered if you want to sell your mineral rights when you have a mortgage:

1. Pay off your mortgage

The simplest solution to work around a mortgage is to get rid of it. If a homeowner only has a small amount of money remaining on their mortgage or has the means to pay it off altogether, they can do so themselves. Then they are free to sell their mineral rights or royalties as they see fit. That being said, most homeowners don’t have the money sitting around to pay off their mortgages.

With Gateway Royalty, what sometimes happens is—if the purchase price for mineral rights is greater than the amount remaining on the mortgage—we will pay off the remainder of the mortgage and then give the homeowner a check for the difference. In this scenario, the homeowner both eliminates their mortgage payment and gets some extra money.

2. Get a release from your lender

At Gateway, we’ve also worked with banks to get permission for homeowners who still have mortgages to sell their mineral rights. This depends on the bank and the situation, but in some instances lenders may agree to release the mineral rights to the homeowner while keeping the property’s surface rights tied to the mortgage agreement. In these situations, getting a release may also require some additional financial considerations as a lender may view the release as a change in property value.

3. Refinance with a different lender

If paying off the mortgage won’t work and an agreement cannot be reached with the lender, a final option is to switch to a different lender that will allow you to sell your mineral rights. This involves refinancing your mortgage through another bank. Refinancing means replacing your old loan with a new loan.

Basically, another lender will come in and pay off your debt to the previous lender, creating a new agreement for repayment. Many homeowners (even those who do not sell their mineral rights) choose to refinance at some point during the life of their mortgage to get a lower interest rate or for other financial reasons. Refinancing can have its pros and cons—but if you’re in a position where you want to sell your mineral rights, it might be worth consideration.

Your mortgage doesn’t have to stop you from selling your mineral rights

The bottom line is having a mortgage doesn’t have to keep you from selling your mineral rights. We’ve worked with many homeowners who have done it (you can read one of those stories right here) and the chances are good that there’s a way for you to do it too.

Interested in learning more about selling your mineral rights or royalties? Drop us a line. We’d love to see if we can help you!

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