Table of Contents See also Summary of Contents on the previous page. Chapter One: A Primer on the Automatic Termination Rule... 1 Robert J. Burnett, Esquire I. Fee Simple Determinable Estate... 3 A. The Habendum Clause... 3 B. Hallmark of Fee Simple Determinable Estate... 4 C. Termination of the Fee Simple Determinable Estate... 5 II. Pennsylvania Follows the Automatic Termination Rule... 6 IV. Termination of Gas Lease Chart... 8 Chapter Two: Debunking the Myths Surrounding Natural Gas Title Washing: How Can One s Title Be Divested If Natural Gas was Not and Cannot Be the Subject of a Proper Real Estate Tax Assessment?... 9 Ronald L. Hicks, Jr., Esquire I. Introduction... 12 II. Brief History of Pennsylvania Real Estate Tax Laws and the Taxation of Natural Gas Interests... 13 III. The Title Wash Concept... 16 IV. Application of Title Wash to Natural Gas Interests... 18 V. Misapplication of Title Wash to Natural Gas Interests... 24 VI. Conclusion... 32 Appendix A: Meske v. Hull, Crary, et al... 33 Submitted by: Ronald L. Hicks, Jr., Esquire Appendix B: Herder Spring Hunting Club v. Keller, et al... 45 Submitted by: Ronald L. Hicks, Jr., Esquire Appendix C: Bailey v. Elder, Hoyt, et al... 57 Submitted by: Ronald L. Hicks, Jr., Esquire Chapter Three: PowerPoint: Mortgage Lending and the Marcellus Shale... 63 Steven M. Regan, Esquire I. What We Will Cover... 65 II. Residential Real Estate... 66 xi
III. IV. A. Title Exceptions and Impediments (Freddie Mac)... 66 B. Title Exceptions and Impediments (Fannie Mae)... 67 C. Release of Oil, Gas or Mineral Rights... 68 D. Unauthorized Oil and Gas Lease... 69 Affect of Oil and Gas Leases on Lender s Real Estate Collateral: Nature of the Lease and Specific Lease Terms... 69 A. Nature of Oil and Gas Leases... 70 B. Nature of Oil and Gas Lessee s Interest in Surface Estate... 70 C. Lease Terms that Affect the Landlord s Surface Estate and Lender s Collateral... 71 D. The Leasing Clause... 71 1. The Standard Leasing Clause... 71 2. A Typical Leasing Clause... 72 E. The Lease Term (Habendum) Clause... 72 F. What Constitutes Operations (Construction Against Forfeiture)... 73 G. Liens (Subrogation)... 73 Due Diligence Issues and Considerations: Does Oil and Gas Leasing Change a Lender s Real Estate Due Diligence?... 74 A. Due Diligence Issues... 74 B. Title and Title Insurance... 75 C. Survey Due Diligence... 75 D. Environmental Due Diligence... 76 E. Appraisal Issues... 76 F. Zoning Diligence... 77 V. Underwriting Considerations: Information to Obtain from the Borrower at the Application Stage and Beyond... 77 A. Oil and Gas Lease Underwriting Issues for Lenders... 78 C. Underwriting Considerations... 78 D. The Executive Right... 79 E. Mortgage Terms... 79 G. Security Interest in Surface Owner s Royalty Another Change of Form Problem?... 80 VI. Underwriting Scenarios and Considerations: Underwriting, Diligence and Loan Documentation Issues and Recommendations... 80 A. Mortgagor/Lessor Requests Consent to an Oil and Gas Lease: Consenting with Confidence... 81 1. Borrower Requests Consent to an Oil and Gas Lease... 81 2. Consent or Reject?... 82 B. Mortgagor/Lessor Requests Subordination of Mortgage to Lease: Is the Lease a Default Under the Terms of the Loan?... 82 1. Borrower or Lessee Seeks Mortgage Subordination... 83 2. Diligence... 83 3. Loan Documents... 84 4. Subordination Options... 84 E. Foreclosure and Bankruptcy: Fee Mortgage Default and Affect on Oil and Gas Lease... 85 1. Foreclosure... 85 xii
2. Bankruptcy... 86 3. Oil and Gas Lease is an Unexpired Lease under PA Law... 86 4. Unexpired Lease Under 365... 87 5. Executory Contracts Under 365 of the Bankruptcy Code... 87 VII. Contact Information... 88 Appendix A: Freddie Mac Single-Family Seller/Servicer Guide 39.4: Acceptable Exceptions to Title Insurance or to Attorney s Opinion of Title (10/06/06)... 89 Appendix B: Fannie Mae Single Family/ 2012 Servicing Guide III, 702: Release of Oil, Gas, or Mineral Rights (01/31/2003)... 95 Appendix C: Fannie Mae Single Family/ 2013 Selling Guide B7-2-05, Title Exceptions and Impediments (04/09/2013)... 99 Appendix D: Fannie Mae Uniform Security Instrument for Transfer of Rights... 105 Appendix E: Fannie Mae Multifamily Asset Management Delegated Transactions Form... 123 Appendix F: Fannie Mae s Example of a Reservation of Rights Letter... 143 Appendix G: Excerpt from Commercial Mortgage Document that Includes the Executive Right as Part of the Mortgaged Property... 147 Appendix H: Prohibition of Leasing Mineral, Oil and Gas Rights Rider... 153 Appendix I: Ohio Revised Code: Title XV. 1509.31 Transfer or Assignment of Oil and Gas Lease; Notice; Persons Liable After Transfer; Effect of Foreclosure... 157 Chapter Four: PowerPoint: Oil & Gas Transactions: Due Diligence... 163 Matthew I. Moses, Esquire I. Overview... 165 II. Areas of Focus... 166 III. Title Review... 166 IV. Lease Review... 167 V. General Corporate Review... 168 VI. Environmental Review... 169 xiii
VII. Final Report... 169 Chapter Five Section One: Mediation in Oil and Gas Law Disputes... 171 Lisa C. McManus, Esquire I. Introduction to ADR... 173 II. Benefits of Mediation... 174 III. Federal Court Mediation... 175 IV. The Benefits and Challenges of Mediation of Oil and Gas Law Disputes... 176 V. Conclusion... 178 VI. Recommended Reading... 179 Chapter Five Section Two: Arbitration from an Industry Perspective... 181 Andrew G. Jenkins, Esquire I. Advantages of Arbitration... 183 II. Drawbacks to Arbitration... 185 III. Early Neutral Evaluation... 186 IV. Conclusion... 187 Chapter Six Section One: Cybersecurity for Attorneys: Understanding the Ethical Obligations... 189 David G. Ries, Esquire I. Introduction... 191 II Ethics Rules... 192 III. Ethics Opinions... 195 IV. Information Security Basics... 196 V. Reasonable Safeguards... 197 VI. Conclusion... 198 VII. About the Author... 198 Chapter Six Section Two: Ethics in Leasing in the Marcellus Shale Play... 199 David G. Ries, Esquire I. Introduction... 201 II American Bar Association Developments and Resources... 201 III. Multijurisdictional Practice... 202 xiv
IV. Doing Business with Clients... 210 V. Special Fee Arrangements... 212 VI. Joint Representation... 215 VII. Conclusion... 218 VIII. Information Sources... 219 xv
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