It May Be Just Beginning — the Importance of Mineral Rights
OSFR has been referencing this issue for some time, and now it has surfaced, in a bad way for some Alachua County residents, namely the unhappy discovery that they do not own the mineral rights to their property. Unfortunately, this means that other rights holders can bring heavy oil rigs on to your property and drill for oil or gas next to your residence, with all the lights, noise and traffic needed for the operation.
All the more reason to ban fracking by state-wide law. Oil drilling could still happen, but fracking is the worst of the worst for your drinking water and the stability (read earthquake-free) of your land. In the article below, some realtors minimize the likelihood of someone actually commandeering your property and extracting some product. True up to now, but wait until something of value is thought to lie there. Why do you think the oil companies had a resurgence of interest in buying mineral rights in the early 2000s?
Couple owns home and land — but not what’s far below the surface
Without an assurance that someone couldn’t come on the land and damage the property searching for oil or minerals such as limestone, the loan — and the sale — were canceled.
The Crawfords paid $1,000 for a mineral-rights title search that turned up 128 pages of documents going back to the 1940s showing oil companies, their owners and heirs selling and conferring ownership of the mineral rights, with 45 to 50 possible owners or more, Ted Crawford said.
Now, they are left trying to figure out how to get the mineral rights from all owners, or hope for a cash buyer willing to live with that impediment on the title, knowing that future buyers may also have to pay cash.
“It’s just so un-American, it’s frightening,” said Ted Crawford, 75, a retired restaurant owner. “Can you imagine, you work all your life. Here I’m sitting on property. I’m just counting on some of that money to start my retirement. It’s just a horrible situation for people.”
Darryl Tompkins, the lawyer who was going to handle the closing on the Crawfords’ property, said it is not that common for mineral rights to scuttle home sales, but it is becoming more of an issue as lenders become more aware of mineral-rights exceptions in title insurance policies.
Alachua County Property Appraiser Ed Crapo said he is hearing more often about problems with mineral rights on properties during closings.
“In most cases they traded for years without any problems and now banks are balking,” he said.
Many mineral rights that are owned separately from surface rights in Florida can be traced to an oil speculation boom in the 1940s when wildcatters went around the country buying the rights from farmers, who would typically retain 50 percent ownership.
“Plus you had people that needed money. They sold the mineral rights cheap,” said Patti Moser, broker of Horizon Realty based in Alachua.
Oil and gas companies came through Alachua County again in the early 2000s and bought up more mineral rights, she said.
As a Realtor for 37 years based in rural northern Alachua County, Moser said she has seen the issue move in cycles. In the 1980s, savings and loans would not lend on properties with separate mineral rights, but in the late 1990s and early 2000s, a lot of loans were made with exceptions for the rights in title insurance policies, she said.
Plus, for properties within municipalities, permits for mining or drilling were unlikely, so lenders thought the risk was minimal, she said.
That changed eight or nine years ago when Fannie Mae and Freddie Mac started requiring a clean Florida Form 9 from other lenders to buy their loans on the secondary mortgage market. The form assures that even if mineral rights are owned separately, the owners do not have the right to enter the property.
That was likely a response to the spike of foreclosures the agencies were getting as they sought protections against mineral rights to protect their ownership in the homes, said Robert Turbeville, senior lender at First Federal Bank of Florida in Lake City. Local ordinances that prevent mining and drilling in subdivisions are often enough assurance for banks to lend, he said.
Moser said a lot of owners who built homes in the High Springs area when lenders weren’t as concerned about mineral rights are now having problems as they try to sell their homes.
In one case, she said, the mineral rights were split up and handed down into 256 segments. In another case, she said ownership was tracked to two women in Jacksonville who accepted $10,000 for the rights.
A title map on the Alachua County Property Appraiser’s website shows separate mineral — or subsurface rights — owned by corporations and individuals on scattered parcels throughout the mostly rural areas of the county. The tax roll for 2014 included 251 mineral rights parcels, according to the Tax Collector’s office.
The Alachua Conservation Trust owns mineral rights on several parcels surrounding Hawthorne, which Executive Director Tom Kay said were bought from prior owners around 2011 to prevent anyone from exercising those rights in the future as part of the Little Orange Creek Preserve project.
“The word in the conservation world is to ‘sterilize’ them,” he said.
But many mineral rights are owned by companies with names such as Miller Oil Properties and Sempra Oil & Gas of Texas, and Trio Petroleum of West Virginia.
Ryan Oil Company of Indiana owns 10 of the parcels among its holdings in at least nine other states going back to the 1940s, said its manager, Kathy Marshall.
The company — which used to drill for oil — leases mineral rights to companies that want to drill for oil and gas, though it doesn’t have any leases in Florida, she said.
The rights are more valuable when oil prices are higher and where there is drilling activity, such as in North Dakota two years ago, she said.
The only cost is to keep paying the property taxes, which ranges from $7.06 to $103.54 for the local parcels, according to the Tax Collector’s Office.
Reuters reported during the energy boom in 2013 that home builders were hoarding mineral rights under new homes after reviewing records in 25 states, with many home buyers saying they had little or no notice. After an inquiry from Florida Attorney General Pam Bondi, D.R. Horton Inc. sent letters to 18,000 homeowners, giving them the option to receive their mineral rights. The Florida Legislature then passed a bill in 2014 requiring disclosure in sales contracts.
Moser said she doesn’t know of any drilling or mining operations as a result of someone exercising their separate mineral rights ownership in Alachua County.
The number of permits and regulatory hurdles from the county or state to begin operations makes most drilling and mining unlikely.
“It’s just not practical for some everyday Joe who has outstanding mineral rights to ever get permitting to actually do something to endanger the house or ownership of the property, but they do have the legal right to enter the property,” said Don Shine of Fidelity National Title Group in Gainesville.
Shine said he has been going back and forth with property appraisers throughout the state for years about how to fix the problem. Lenders can lend if mineral-rights holders are barred from entering the property. Their rights to enter can also expire if there is no current assessment for taxes and no notice to the surface owner for 30 years.
Shine has tried to get property appraisers to assess enough value on mineral-rights parcels to generate a tax bill. If the taxes go unpaid, the homeowner would at least have the chance to buy the tax deed at public auction and after three years remove the mineral rights from the tax roll.
Most mineral-rights parcels in Alachua County are assessed at $100 for $2.35 in property taxes, but the Tax Collector does not mail bills for amounts below $5. Of the 251 mineral-rights parcels, only 68 are taxed for more than $5.
Under the state’s Marketable Record Title Act, the property owner can also bar the right of entry if the mineral-rights holder does not file record of their rights within 30 years.
The clock would start ticking on those 30 years once the mineral-rights parcel is removed from the tax roll, Shine said.
“As it stands now, the clock’s not ticking at all,” he said.
Gainesville real estate lawyer Chic Holden said the right of entry is automatically barred if the mineral-rights owner has done nothing for 30 years. In cases in which the surface property owner retained part of the mineral rights, they can file a lawsuit to recapture the rest.
After owning Joe’s Deli and later Crawford’s Maryland Fried Chicken in Gainesville, Ted Crawford bought 5 acres for $27,500 and put up a mobile home in 1997 in Wood Meadows, halfway between Alachua and Waldo. He bought an adjacent 4.5 acres from a neighbor for $60,000 in 2006 with plans to sell it, but then the real estate market crashed.
Wood Meadows was subdivided in 1988 into 33 parcels. The mineral rights cover the entire subdivision, plus 16 more parcels to the south and west totaling 288 acres. Clerk of Court records show 106 mortgages recorded there, but only six since 2010.
Crawford didn’t notice at the time, but the second sale included notice on the title of separate mineral-rights ownership. He has filed a claim on the title insurance for the first parcel, but that would only get him $27,500 — far from the $190,000 he was counting on to move.