Title insurance policies and mineral rights

Blog Post

Title Insurance is the principal means by which buyers of real property protect themselves from (i) “sellers” who do not actually own what they purport to sell, (ii) liens that continue to attach to the property and (iii) encumbrances, such as easements and leases that may interfere with a buyer’s planned use for the property. With the advent of the oil and gas boom in many parts of the country, buyers may not be receiving all of the protection they thought they were buying.

If you thought that your policy covered all of the property you were expecting to acquire, you would be wrong. Policies in Ohio and other states do not include ownership of the minerals below the ground. If someone other than your seller has an interest in the minerals, you will not acquire them and you will not be able to look to your title policy for protection. Included in Scheduled BII of the policy is an exception to coverage for minerals, including, but not limited to, oil, gas and coal. Also excluded from coverage are leases of minerals, such as an oil and gas lease, a not uncommon instrument affecting title in Ohio, Illinois, Michigan, Pennsylvania, and West Virginia, among other states.

So, what does this mean?

It means that if some other party owns the minerals, your surface rights may be impacted by the holder of the mineral rights. The holder of the mineral rights would, depending on the state, have the right to use so much of the surface as is necessary to adequately access the minerals. If you acquire the mineral rights, but the property is subject to an oil and gas lease, your title insurance will not give you protection. The holder of the lease will have the power to exercise its rights under the lease, including the right to access and withdraw oil and gas from the property.

In too many instances, buyers of real property, especially buyers of significant tracts in mineral rich areas, are buying real property without a full understanding of the risks. In order to protect themselves, buyers need to ask their title insurance companies to delete the mineral exceptions in their title policies at the time they acquire the property or receive an opinion of competent title counsel regarding the stats of the minerals. In urban counties where there is little chance of future oil and gas exploration, a title company may agree to the deletion of the exception in the policy, but in counties that are or may be subject to oil and gas exploration, general advice and/or a title opinion from a law firm with experienced oil and gas counsel should be obtained.

The distinction between a title opinion and a title commitment is that the title opinion covers and includes examination of relevant instruments pertaining to the land all the way back to the mid-1800’s instead of going back the standard 40 years as required by the Marketable Title Act. A title opinion is a legal opinion attesting to the ownership and matters surrounding the property, including surface estate, oil and gas executive rights and mineral fee estate, and coal estate issues. The opinion discusses encumbrances on the property, including time expired oil and gas leases, current oil and gas leases, coal leases, and restrictive covenants regarding oil and gas activity on the land. When applicable, the title opinion also examines and interprets laws and statutes, including the complex requirements of the ever changing Dormant Mineral Act.

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