Have You Even Had a Seller Want To Keep Mineral Rights For a SFR Sale?

Question

My sister-in-law is involved in buying a property in the DFW area where drilling and mineral rights issues are apparently a hot topic. The house is $300k+ in a nice area and the seller slipped in a provision in the last counter where they wanted to keep the mineral rights to the property. I'm not sure if they even have the mineral rights, were using it as a negotiating "tactic," or there was some other reason. What I do know is that I haven't really ever heard of something like this.

Have you? What was the outcome? What would you have told the seller in this case?

Have you?  What was the outcome?  What would you have told the seller in this case?

Account Closed · Answer

Bryan Hancock  I find it hard to believe there is any land in Texas where the mineral rights weren't detached long ago.  Owning them and preserving them has nothing to do with active leases.  Mineral rights have always been about owning the rights for potential future cash flow.  The rights stay in the same families and trusts for generations.  I work in oil counties and I always check my title report to see when the mineral rights were sold off.

Only once have I seen any remain.  Remarkably, 1/2 of the mineral rights remained on a developed parcel (SFH). 1/2 of the rights had been retained when the ag land sold in the 1940s.  Somehow the developer in the 1950's failed to exempt his 1/2 when he sold the property with the new SFH, and that 1/2 has stayed with the land through all the transfers through this year.

I toyed with keeping them, just for fun, but the deal was ready to close and escrow was already funded and I didn't want to confuse my buyer.

Mineral rights language typically allows for surface access, so always read your title report.  If someone else owns the rights, your yard is not exempt from mineral exploration or extraction.

Andy B. · Answer

This used to not be a big deal so no one bothered to keep them -- however, with the natural gas surge and the "fracking" plan, small lots in residential neighborhoods can be "drilled".

Basically, the state and county laws seems to place a certain restriction on how close a drilling operation can be to homes. This radius was recently reduced (at least in the DFW area due to the Barnett Shale formation) and drillers started drilling on open land area and then drilling parallel into neighboring areas -- I've heard they can go 15-20 miles away from the drill site.  The "fracking" then occurs and gas is drawn from this parallel bores.  So, neighborhoods are now available for the capture of natural gas making the mineral rights within a subdivision worthwhile.

I used to own a home in Arlington and sold it - thinking I should plan to keep the mineral rights, but did not -- two weeks after close, I got a letter from Chesapeake wanting to pay me so they could harvest natural gas from under the house.  Since I did not keep the rights, I did not ge tthe money.

I fully expect many homeowners to start to expressly reserve mineral rights in the future

As an aside, mineral rights in Texas pass with the sale of the land unless the sale express states that they do not -- so if no deed has reserved the minerals rights, they are not severed.

Also, Title Insurnace is having trouble with these issues and will no longer grant title insurance on mineral rights without additional fees (maybe not even then - it's been a while since I attended that seminar).

Andy B. · Answer

for a house, you probably do not have an issue with drilling (and lack of repair to surface) - just loss of income from captured minerals.

Check the local restrictions on drilling and I bet the house and lot are too small to drill on, so no surface rights will be infringed upon.

Rule of thumb used to be 200 yards from a house, but each local municipality has their own rules, so if it is a concern you should check it out.

Bill Gulley · Answer

We went through this last year in the DFW area, it's common for mineral rights to be retained or properties sold without them. You need to look at the assignment as it will give the ingress/egress rights. In Texas an oil company has NO obligation to improve the property or set it back to its original condition after they come in for any production work, per our attorney in DFW. He told of an instance where they came in and tore up a parking lot and left. If the conditions to place the property back is not in the assignment agreements, there ya go. Most of the rights in the DFW area were sold off a long time ago.

Next, the issue is so bad in the area and trying to track down who has such rights that the title companies won't insure mineral rights, it was excluded in our policy.

You can always negoiate it and if it's a problem, walk away! Good luck...

Ken Latchers · Answer

My parents have mineral rights to a couple of hundred acres in ND.

Frankly, if the lot is small, the mineral rights will never be worth much.  Companies who lease the rights are not ever going to pay much to someone sitting on half an acre, no matter how hot the market is.

Karen Margrave · Answer

Bryan Hancock, first off I'd find out if the deal is a no go if the buyer doesn't agree to giving up the mineral rights. If it's not, I'd just tell the seller no, and keep it simple.

Have you talked to the title company about this? Is it common practice in the area? Even though the parcel size is small, if minerals were found in the area, each property owner with mineral rights could probably get in on the payments.

Keep us posted.

Mark H. · Answer

Well, I know one way it can happen....

Back in my old home state, when the property taxes went unpaid, the local government had the option to "revert" the land to the state of Michigan.  Any subsequent deed from the state would reserve the mineral rights to the state.

Recently, I saw that a property owner there could request those rights back by filing some forms & paying a fee...  I suspect if it's a city lot you would get them back, if it's a big plot in gas country, you won't.

It is kinda funny on a SFR, the reason I researched the issue was because I bought some lots in my hometown years ago from the state, and my parents later built their current home there.  (sans mineral rights).  I can't imagine mining a swath of land that's 120 feet by 140 feet inside an incorporated city, but I suppose stranger things could happen.

Bryan Hancock · Answer

Yeah...she looked through the deed on file with the county.  My father-in-law is an attorney so my guess is he helped some.

She called me up and quizzed me about mineral rights in general and how typical this is.  I told her I haven't ever heard of someone demanding to keep the mineral rights when they didn't have an existing revenue stream associated with them.  My guess is they have been approached or planned to shop them somehow.  I don't think they have them from the chitter chatter recently though.

Jon Holdman · Answer

It would be in the deed.  I'd have to go dig through some old files to find the verbiage, but the deed would state mineral rights are excluded.  Those could then be sold separately.  If an oil company wanted to develop the area, they would assemble all the rights that covered the reservoir.  The owners of the rigths would get a fraction of the gross revenues generated by the production.

Bryan Hancock · Answer

I don't think there is a contract in place for someone to harvest the minerals Joel.  I am not sure if the property still has the mineral rights.  My mother-in-law looked into it and apparently some houses in the neighborhood have them and some don't.  I am not sure if this was something that got negotiated with the developer at some point or if most people had them and stripped them out when they sold their properties.

Does anyone have any idea how stuff generally gets stripped in instances like this?

Have You Even Had a Seller Want To Keep Mineral Rights For a SFR Sale?

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