Mineral Rights When Buying Land: What You Need To Know
mineral rights

Mineral Rights When Buying Land: What You Need To Know

Mineral rights when buying land is a subject that concerns a lot of people. Whilst it is good to be aware of what rights you do and don't have, in most cases it is unfounded and there is nothing to worry about. 

Most people want to buy land to go hunting, camping, walk their dogs, ride their horses, build a small homestead or chill out and relax. Most people are not thinking of starting a mining operation any time soon.

Are There Any Risks To Me If I Do Not Get The Mineral Rights When Buying Land?

The worry for most people is, if someone else owns the mineral rights to my property, am I at risk of being dug on?

Whilst this is technically true, in reality, this possibility is almost non-existent. Many of these mining rights are historical. If mining companies thought there was a chance of striking anything of value, it would have been mined by now.

Equally, a mining operation costs many millions of dollars in set up and ongoing costs to start. They would never start on one or two 10-40 acre parcels of land. They would need to take control of thousands of acres which then requires committees, consultations, permits and a lot of red tape. They would more likely make you a generous offer for your land, where you make a steep profit and can move on with a lot of cash in your pocket. 

However do not buy land thinking one day you will be able to sell to a mining company. The likelihood is any potential of these historical rights have already been exploited or discounted.

What Is The Difference Between Mineral Rights Ownership Versus Surface Mineral Rights ?

Mineral rights when buying land can be described as the unseen value associated with a tract of land. Historically, land was transferred among owners with the royalty rights co-mingled with the surface rights. As oil and gas production began in the U.S., these rights started to be viewed independently.

If mineral rights are severed, i.e. the process of separating mineral rights from the surface rights, a new and separate chain of title for the minerals begins.

Separate ownership of mineral rights and surface rights can sometimes cause confusion. With respect to oil and gas production, the owner of the surface rights has limited input as to whether oil or gas is produced from underneath his property. If production is established, a portion of the value is paid via a royalty fraction (i.e. percentage) to the mineral rights owner.

Most land purchases give you the surface mineral rights to the property. This means you can dig a well, you can dig foundations for your house, you can till your land for agriculture. This is extremely common to just be buying the surface rights in large parts of Nevada, Texas, Oklahoma

If you do not own the mineral rights when buying land, it means you cannot start a mining operation! You cannot lease or sell your land to an oil or gas company for exploration and extraction purposes. 

How Do I Know If I Own the Mineral Rights When Buying Land?

The local county office should have all the records. Examine them carefully and look for language anywhere in surface deeds that state the seller is reserving all or part of the mineral rights under the land being sold. The mineral estate and the surface estate can actually be split off from one another, and commonly are.

So while it’s likely that the first owner was granted both the surface and mineral rights when buying land by the government or claimed both when claiming the land, it’s probable the estate has been “split” over the years, especially in areas where there has been lots of oil and gas production.

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 royalty from the minerals if and when they are actually produced. 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 on the royalty deed.

It is unlikely that all the minerals under your land have always been owned by the same party, or that one party owns all of them now, so you will need to find ALL of the instances where the minerals have changed hands over the years and keep track of the divisions from the beginning in order to determine who owns what currently.

This isn’t always a simple task, which is why landmen, attorneys, and other professionals get paid so much to research mineral ownership and prepare title opinions. An experienced landman often charges between $250 and $500 per day to “run title” for clients, plus expenses.

Should I Only Look For Land For Sale With Mineral Rights?

Be careful what you wish for.

As with other assets, royalty rights come with a tax liability. These tax burdens vary depending on whether the minerals are being produced or not. Minerals can be taxed both at the state and county level, in addition to your federal taxes.

Remember obtaining mineral rights when buying land will make the land considerably more expensive. If you are not interested in mining your land (99% of people are not), keep it simple and stick to the criteria you actually want.

Maybe you want flat land dry land to go camping.

Maybe you want rolling hilly land with dirt tracks to ride ATVs.

Keep it simple and do not get distracted by shiny objects that will send you down a rabbit hole and delay you getting your dreams. You might be able to buy your dream property for $3K-$10K. You will not be able to buy mineral rights for this amount. The price would sky rocket.

Can I Sell Mineral Rights?

In order to sell mineral rights, you must first own them. In most cases, this may cost you hundreds of thousands of dollars. It is just not worth it.

If you are not a miner, or into mining, simply do a basic check that there are no imminent plans to mine in your area, then move on with your plans and spend your days happily living off the grid, or hiking in the woods or watching beautiful sunsets. 

If you do want to start a mining operation or you think there is an imminent risk of mining activity gearing up in your area, make a few calls to the county or hire a professional to do the work for you, or you could pay the local abstract company to prepare a “take-off” for you. A take-off is simply a listing of the books and pages where the actual deeds and other conveyances pertaining to your specific property can be found in the courthouse records.

You can tell them you want a list of only the documents that actually convey mineral rights title, rather than a “complete” list that would include land, oil and gas leases, paid mortgages etc. A “take off” is cheaper than a full abstract of title (which would include copies of the conveyances) and would save you the time and effort of searching through the index books yourself and deciding which documents actually affected the title.

You could bring the take-off list with you to the courthouse and go directly to the books that way, thus allowing you to more quickly put together your chain of title.

Some counties do not have a quality abstract office and in such cases it would be far better to look through the index books at the courthouse yourself. Usually the court clerk’s office will be familiar enough with the local abstract office to tell you if they’re any good or not.

Summary

Yes it is important to understand mineral rights when buying land, what you are buying and all the risks involved. However, sometimes the mineral rights issue costs people months and months of time as they toss and turn at night wondering if a big multi national will come knocking on their tent one day in an attempt to dig up their 20 acre parcel.

This does not happen! Do not obsess about things that do not happen.

Write a list of your criteria and what you are looking for, then take action.

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