lake norman real estate, The Real Estate Process, Home Buying and Selling Tips

What Lake Norman Buyers & Sellers Should Know About Mineral, Oil & Gas Rights

North Carolina's new Mineral Rights Disclosure image

 

Effective January 1st of this year, The State of North Carolina added a new disclosure form that must be signed by both parties of a residential property transaction as part of the initial purchase contract. The State of North Carolina Mineral and Oil and Gas Rights Mandatory Disclosure Statement   requires all sellers of  new or existing homes in North Carolina to disclose whether the mineral, oil and gas rights for the property are owned by someone other than the seller.

“The purpose of this new law is to protect the buyer. Property owners sometimes lease or sell the subsurface mineral rights on their property to a third party or company. This means that if sellers have “severed” their mineral rights, the third party or company could potentially have the perpetual right to drill, mine, explore and remove any of the subsurface mineral resources on or from the property. These mineral or materials could be extracted directly from the surface of the property or from a nearby location – even if the property is sold to a new owner.”

Okay, so why here and why now? Seriously, Lake Norman is not in Texas you might say.  As a matter of fact, I have yet to see an oil rig in our area which may explain the confusion surrounding this disclosure on all sides.  The reality is that most of my Lake Norman sellers and buyers are not even aware that mineral rights can be sold separately from a single family residence and so are clearly in the dark about how to answer it and why.

Let’s flash back to an article in Reuters  on September 21, 2013 in which they highlight a recent single family home sale in Florida where the seller “didn’t know that they had, in essence, bought only from the ground up, and that their homebuilder, D.R. Horton, had kept everything underneath.

“Wait a second, wait a second,” Robert Davidson said after a reporter told him that a search of county records showed that D.R. Horton still owned the oil, natural gas, water and other natural resources beneath his and his neighbors’ homes. “Let me sit down a minute here. They have the mineral rights to the land I’m on?”

The article goes on to say “The phenomenon is rooted in recent advances in extracting oil and gas from shale formations deep in the earth, fueling the biggest energy boom in modern U.S. history. Horizontal drilling and the controversial practice of hydraulic fracturing, or “fracking,” have opened vast swaths of the continental United States to exploration.  As a result, home builders and developers have been increasingly – and quietly – hanging on to the mineral rights underneath their projects, pushing aside homeowners’ interests to set themselves up for financial gain when energy companies come calling. This is happening in regions far beyond the traditional American oil patch, which has a long history of selling subsurface rights.”

You guessed it, D.R. Horton, one of the biggest U.S. home builders, was at that time considered a heavy user of this practice and it just so happens that they were doing this exact same thing in North Carolina!  When a group of homeowners in the Legend Oaks subdivision in Chapel Hill contacted the NC Attorney’s General office back in 2012 complaining that they were not told that D.R. Horton was retaining the mineral rights until the time they signed the closing statements to their properties and communicating their panic that someone might start “fracking” under their homes, it led to a lot of negotiations and ultimately DR Horton returned the mineral rights to 700 homeowners.

Fast forward to today and you may begin to realize why this disclosure was created.  Clearly our state now requires all sellers to disclose up front if they are only selling the “surface rights” to their property and not the “mineral rights”.  This is a good thing.  The problem is that on every Mineral and Oil and Gas Rights Mandatory Disclosure Statement I have seen they sellers check “no representation” to the statement that mineral, oil and gas rights were severed from the property by a previous owner.  And, they have all answered that no, they have not sold the oil, mineral or gas rights to the property.

Now, it seems like common sense that our lake properties, which were originally owned by Duke/Crescent Resources and are now being sold primarily one parcel at a time, should include both their surface rights and the mineral rights.  I can’t imagine back in the 1960’s and 1970’s that anyone was worrying about mineral rights or planning to drill for oil or gas at the lake.

This new disclosure is intended to eliminate any future issues like the one back in 2012.  But, because the legality of mineral rights can be quite tricky to understand, if you really want to know, it is best to hire an experienced attorney who can trace the deeds back to the original mineral property rights.  Who knows, maybe one day that will be a common practice for closing attorneys in North Carolina.  Until then, our common practice here in Lake Norman will be to continue to accept the “no representation” answer by the sellers about past severing of mineral rights. At least the sellers have to disclose if they themselves have severed them. Baby steps!

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North Carolina Real Estate Commission Bulletin: Fracking, What Every Agent Needs to Know

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