Answer – For the most part you need not be too concerned about this issue; however, it is good to understand it and the circumstances under which it can be important.
Every house or condo is built upon land and it is what is under the ground on that land that makes up the mineral rights that are associated with it. It’s not just dirt. Here’s a good little piece to read from the Michigan Department of Environmental Quality (DEQ) about mineral rights in Michigan.
At its most basic level there is stuff below ground, beyond the dirt, that may have value – things like metals, or oil or gas or even sand and gravel. Someone owns the right to explore for those things and to extract them, i.e. they own the rights to those minerals. Most of the time, the owner is you, if you bought the property; but, that is not always the case. Mineral rights normally “run with the land”, that is they are passed on from owner to owner, just as any improvements (buildings) are passed with the land. Click here for a detailed article on mineral rights from Geology.con
Sometimes, usually back many years ago, an owner may have signed a contract with a company giving them the rights to those minerals. This happened a lot with oil and gas rights back in the heydays of exploration in the U.S. Then things went dormant for a long time, when the initial, easy to extract minerals were depleted. You often see old oil well pumps along the roads, maybe with old collection tanks nearby. Those were active wells at one time and the mineral rights were sold off by the landowners (mostly farmers) at the time. On many of those old oil fields the rigs were removed and there is no evidence left that they were ever active drilling and recovery sites. Sites that supported mining operations for almost anything are much easier to spot, since mines, especially open pit mines, often leave the land scarred.
Fast forward to today and there you are out looking at houses in an area that used to be farm land, but which is now dotted with new homes and perhaps subdivisions. How do you know if there used to be an oil well on the property? The Seller’s Disclosure that you can access through your Realtor may just say “Unknown” on the Mineral Rights question. Many owners don’t know. They never asked when they bought the place. The short answer is that you don’t know; however, if you get to the point of making an offer one of the things that may show up in the title search paperwork that you will eventually get are any old mineral rights leases that do not have releases recorded with the Recorder of Deeds office at the County. If you see that a red caution flag should go up in your head.
Why is it important that any old mineral rights leases have been released? Well imagine that you just bought a piece of vacant land or maybe your dream house on a nice size parcel and the next day a drilling rig shows up and you are given notice that the company that owns the mineral right is exercising their right to drill on that parcel – on your land! That’s a bit far-fetched but not impossible, given that new fracking technologies have enabled oil and gas companies to recover much more of what they left behind in those old fields. Many of those old mineral rights contracts did not have expiration deadlines, they just went dormant for a long time. If you didn’t check to see if the mineral rights were yours when you bought the place you could be out of luck.
In Michigan there are laws governing the expiration or severing of old mineral rights leases. Usually they revert to the original owner after 20 years. Even then if you are not the original owner who signed the lease, you may have to go the County Recorder of deeds and file paperwork to have those rights passed forward to your. There are also provisions for them to go on forever, it the company that owns them takes any actions during that period towards exercising the lease. Those actions can include active things like actually extracting or storing the minerals on site or more passive things like filing a statement of interest at the County Recorder of Deeds office or perhaps even selling those rights to another company. There are even laws in Michigan that can force you to give up your mineral rights to an oil or gas company. Click here to read an article about one Michigan couple’s losing battle against Compulsory Pooling.
If you are looking to buy in a fairly urban area this should not be a problem. If you are buying is an outlying suburban area it could be a hidden problem. Click here to read about developers in Florida keeping the mineral rights for themselves. If you are buying out in the country side, you need to be cognizant of this issue and make sure that you have done your due diligence to see if any mineral rights leases exist. You can click here to read how to go about finding out about who owns the mineral rights on a piece of land. You may even find that one or two owners ago the owner at that tie signed a lease and has been getting paid ever since because he retained the mineral rights when he sold the place. That happens, too. You’ll have to decide whether you feel comfortable with that situation. After all, someone else is making money off the land that you house will be sitting upon. The owner of the rights who is receiving that benefit may be willing to sell them to you, but at a price (usually some number of years’ worth of the royalties that he/she is receiving).
So, mineral rights and who owns them is a little more complex than you might have thought. It is important to understand where you stand on mineral rights before you buy. You may still like the place well enough and be sure enough that a drilling rig isn’t going to be sitting next your home to go ahead with the sale, That’s OK. At least you’ll know how to fill out the Mineral Rights question on the Seller’s Disclosure when you go to sell.
