Local bank officials: Chesapeake's mortgaging of mineral rights won't affect homeowners' applications for mortgages

BY JAMES LOEWENSTEIN (Staff Writer)
Published: August 3, 2011

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Chesapeake Energy Corp.'s recent widespread practice of mortgaging the mineral rights on local properties shouldn't adversely affect the ability of the owners of those properties to obtain a mortgage on their homes, according to officials from two area banks and an attorney.

Nor should a property owner's ability to get a mortgage be adversely affected by Chesapeake's mortgaging of the pipeline right-of-way on his property, they said.

The fact that Chesapeake Energy has mortgaged the mineral rights or pipeline right-of-way on a property "is not an issue" when the property owner applies for a mortgage from Citizens & Northern Bank, said Hal Hoose, executive vice-president and director of lending for Citizens & Northern Bank.

"Assuming that the property owner qualifies for a mortgage, (Chesapeake's mortgage of the mineral rights or of the pipeline right-of-way), will not be an issue," Hoose said. "We would still provide the mortgage" to the property owner, he said.

The issue of Chesapeake's mortgages and how they would impact the ability of local property owners to obtain a mortgage on their homes was raised at Thursday's meeting of the Bradford County commissioners by former Standing Stone Township Secretary/Treasurer Diane Ward.

Ward had said that many property owners don't realize that Chesapeake can mortgage the mineral rights on their properties. And she said that the first time a property owner might hear about Chesapeake's mortgaging the mineral rights on his property is when he applies for a mortgage from a bank and is told by the bank: 'By the way, you are fully mortgaged to the hilt. There is no way we can give you a mortgage.'

However, after the meeting, Ward said that she only knew of two cases where a property owner had been denied a mortgage because of Chesapeake's mortgaging of mineral rights or pipeline rights-of-way, and she said that in both cases her knowledge of the denials came from second-hand information.

Donald Abrey, CEO of Peoples State Bank, said that his bank has looked into Chesapeake's mortgages of mineral rights and pipeline rights-of-way, and said they should not affect a property's owner's ability to get a mortgage or home equity loan from Peoples State Bank.

John Shoemaker, an attorney with the Greevy & Associates law firm in Williamsport, said that he has researched gas companies' mortgages of mineral rights and pipeline rights-of-way.

"The mortgages by Chesapeake (of mineral rights and pipeline rights-of-way) do not create any kind of a legal barrier to a landowner getting a mortgage," Shoemaker said. Nor do Chesapeake's mortgages create a legal problem for pre-existing mortgages on a landowner's property, he said.

He said he did not believe that Chesapeake's mortgages would make banks less inclined to provide a mortgage to a landowner.

However, he said that banks that are located out of the area and whose employees are not knowledgeable about issues related to gas drilling may be less inclined to provide a mortgage to a property owner on whose land Marcellus gas drilling could take place.

Chesapeake Appalachia, a subsidiary of Chesapeake Energy, in May had mortgaged the mineral rights on over 1,000 properties in Bradford County in order to use a $5 billion revolving line of credit with the Union Bank of California, which Chesapeake planned to use for its drilling-related operations, Ward said.

In addition, on July 15, Appalachia Midstream Services, which is a subsidiary of Chesapeake Energy, mortgaged the pipeline rights-of-way on over 2,000 properties in Bradford County in order to tap a revolving line of credit with the Wells Fargo Bank, said Ward, who had worked for 23 years in managerial positions at Procter & Gamble in Mehoopany.

James Loewenstein can be reached at (570) 265-1633; or email: jloewenstein@thedailyreview.com

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