No Mineral Rights? Forget That Refinance!


Owning a home that sits on land containing assets such as oil or natural gas can make you an overnight millionaire. Many Americans are now signing away the rights to the minerals on their land, and are being paid enormous sums of cash by companies that extract those resources. But there are some legal and financial consequencesthat can create tremendous headaches.

"There’s Gold In Them Thar Hills..."

Mineral rights basically give you legal possession over whatever is in the ground. If you own a property with full mineral rights and discover gold in the backyard, for instance, you have a right to claim it as yours. The same goes for other underground resources like water, oil, coal or natural gas. You can also maintain ownership of your home while leasing or selling only the mineral rights to someone else. Many oil companies, for example, are now paying top dollar to homeowners for the chance to extract natural gas from shale rock deposits on their land.  

SEE ALSO: How to Buy Property Through a Trust

Opening Pandora’s Box

Unfortunately, signing over your mineral rights can trigger unwanted repercussions. Mineral leases and drilling operations may violate state or local laws and zoning ordinances. Frequently, these rules cover enforceable prohibitions against everything from drilling rig installations to commercial truck traffic, or even noise pollution caused by industrial activity. There may be regulations, for example, regarding release into the air of hazardous substances like natural gas. Similarly, restrictions often prohibit drilling within a certain proximity to a residential dwelling. Sometimes this also means you aren’t allowed to build a home on land that’s near a site where future drilling is planned.

Mortgage Company Objections

Some lenders will not underwrite mortgages unless the property comes with all of its mineral rights intact. That’s because lenders don’t want to be liable for financial loss, physical damage, or other adverse consequences if a third party starts extracting chemicals such as petroleum products. Title insurance restrictions are another thing to consider, because some insurance companies won’t provide title coverage for property where there’s commercial activity or industrial equipment. Most lenders require that homeowners have title insurance, so the presence of a drilling operation could jeopardize your ability to secure a mortgage or a refinance. Recently, the Maryland Attorney General’s Office issued a strong warning to those who plan to enter into mineral rights lease agreements. As Attorney General Douglas Gansler explained, “If a mineral rights lease is on the table, take it to your bank or mortgage lender first and have them sign off on it.” Nobody wants to inadvertently enter into a legal mess. Before signing over any mineral rights, hire an attorney experienced in this area of the law who can protect you from making a mistake you’ll regret later.

SEE ALSO: How To Refinance An Inherited Property

Date of original publication:
Updated on: November 10, 2015

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