Joe Wilson is CEO of Infinity Resource Group, Inc., a professional mineral rights consulting firm in Parkersburg, W.Va., and a Registered Landman. David Pearl is managing director of a CNG patent holding company and president of a CNG fuel island development company. Your questions are welcomed by calling 412-535-9200 or by e-mailing firstname.lastname@example.org.
All too often we get a call from someone thinking that they can sell or lease mineral rights to their real property when in fact they don’t own them. Obviously you can’t sell or lease something you don’t own. Ownership of surface rights does not automatically mean you have rights to the minerals below the surface. As we have written in a previous column, “fee simple” means ownership of real estate from the center of the earth to high as the heavens. The questions always are: 1) Do you own the land in fee simple? 2) If not, do you own the minerals below the land surface? 3) Are you on the legal title? If not, are you the owner of the property by operation of law, such as by inheritance; and 4) are there any liens, such as mortgages or recorded judgments that affect your rights to the minerals? The answers to all of these questions are found in the local county courthouse, although sometimes they can be difficult to find.
No investor will buy or lease mineral rights until a title abstractor verifies the answer to each of these questions. A title abstractor is a trained individual who knows how to research documents in the county land records and county court clerk’s office. Title abstractors pull all records appertaining to the ownership of a property, including deeds, leases, royalty leases, mortgages and other documents that affect the title or ownership of the property.
In most cases, the status of mineral rights does not appear on a property deed. Unless specifically excluded from a deed conveyance, minerals are presumed to be included in the conveyance of the surface land. Mineral rights may be severed from the surface land; i.e., they may be sold or transferred separate and apart from the surface land.
Even if a deed does purport to convey mineral rights, the deed may be inaccurate if there are historical transfers of the mineral rights that are unknown. The only way to be sure that a deed actually conveys mineral rights is to research the chain of title to confirm the mineral rights were not previously severed and are still a part of the fee simple estate, or if they were severed from the fee simple estate, the title abstractor must research the current owner of the minerals, and whether there are any encumbrances on the minerals.
Title searches do not follow street addresses. In Pennsylvania and most eastern states, real estate is described in “metes and bounds,” which are descriptions of land boundaries via surveys. Property records are usually found using grantor and grantee indexes, and searches are usually done by name rather than legal description. Searching by name can be extremely time-consuming and confusing. Most Western states use the Public Land Survey System (PLSS) and your legal description will always include a section (or part thereof), a township, and a range.
In the case of mineral interests that may have been severed from the fee simple estate by a former owner – by reservation in a deed, or transfer to a third party or heir – title abstractors will need to trace the mineral title as far back as possible, even to the original land grant if records allow. Thus, the review of these records is time-consuming and typically involves archaic, hand-written documents.
Sometimes gaps will occur in the chain of title, sometimes called a “cloud” on the title. A cloud occurs when you’re unable to determine from the records how a certain grantee came into title. A cloud in the title could also be caused by a faulty legal description and the resulting misfiling of a deed.
Oftentimes abstractors have to search divorce records and probate records to see whether family events affect title to the property or minerals. Also judgment reports have to be searched to see whether there are foreclosures or liens from judgment creditors affecting the title.
Royalty deeds may also be found, which are not the same as mineral deeds as they do not actually transfer the mineral rights but only a right to receive royalties from the minerals if and when they are actually produced. A royalty deed is more like a lease; the grantor of the royalty deed would still retain actual ownership of the minerals, so the title to the minerals would not transfer to the grantee.
The lease will not describe what the lessor or mineral owner owns, but will describe the tract leased by the oil company. And just because a document says “Mineral Deed” at the top of the page, does not necessarily mean it is a mineral deed. You have to read the document to see what really is conveyed, whether it is royalty rights or mineral rights.
There is no charge to go to the courthouse and search these records; however, piecing together the rights of ownership to a particular parcel is often tedious. Abstractors have to read and understand the legal jargon used in these documents and have to make sure they catch each nuance. Sometimes documents can be searched on-line, but the same tedious review must occur for a title to be guaranteed.
Generally title companies will not insure the title to minerals. While a good title abstractor rarely makes mistakes, in the event a mistake is made, or if an unrecorded document surfaces where it is impossible for a title abstractor to find it, the potential damage claim is too expensive for most title companies to insure. Title insurance policies will protect the title to the land ownership, but that’s as far as they’ll go. So in addition to the normal investment and business risks associated with acquiring minerals, mineral purchasers and lessees also assume title risks when they invest in minerals.
Once title to minerals is determined, the abstractor must show whether there are liens or mortgages on the property. Some mortgage companies will permit the severance of the minerals from the mortgage while others will not. It will depend on how the original mortgage is written and whether there is sufficient collateral to cover the amount of the outstanding mortgage balance. You can negotiate with your mortgage company and offer to give them some of the proceeds of the mineral sales or lease to offset the mortgage balance, thus enabling the mortgage company to release their mortgage rights from the mineral portion of your property.
Before making any decision regarding the disposition of your mineral rights, it is always advisable to seek professional advice from a mineral rights consultant for an evaluation of your mineral rights, and to consult with your lawyer and tax adviser.