Over the last few months we’ve begun to run across a new tactic that mineral buyers are using here in West Virginia. It’s sneaky and underhanded, more than one company is doing it and more seem to be doing it every day, so we thought we should bring it to peoples’ attention.
When a company decides it’s interested in buying your mineral rights (not leasing), it will have someone contact you to find out if you’re interested in selling. In the past, they would send you a Purchase and Sales Agreement to sign and then they would go do title work. It was pretty obvious that you were getting yourself into a binding agreement to sell your mineral rights. That’s no longer the case.
Now the company representative will convince you to sign an agreement that “allows them to do title work on your mineral rights”. That statement is very deceptive, but it’s also a truthful statement. Here’s why.
First, the company can do title work on your mineral rights without you signing anything. Anyone can walk into the courthouse at any time and look at the deeds, wills, affidavits, and court cases that affect the ownership of your property. They are public records. Public records are not restricted or protected in any way.
Second, title work is expensive. It typically costs at least $10,000 to have title run on any particular piece of property. Some places and some properties can be significantly more expensive than that. Before a buyer puts a lot of money into title work, he typically wants to make sure that he will be getting something back for his investment. In this scenario, that something is your mineral rights.
Third, when you sign the agreement “allowing” them to do title work, the agreement legally binds you to sell the minerals to the company regardless of what the company representative may have said or not said to you. That removes the risk of the company losing all the money it puts into title work in the event you back out of the deal after they’ve done the title work.
What that all adds up to is a reason the company can say that the agreement “allows” them to do the title work — once you sign that agreement the company has a guaranteed return on investment. Since they have a guaranteed return on investment their investors will “allow” them to spend money on the title work. It’s tricky, but it’s true.
We talked with one man who signed one of these agreements. The company representative had told him that his signature was necessary to allow them to do the title work on the property. The company representative hadn’t told him that the agreement bound him to sell once the title work was done. The agreement said that the property was to be sold at $1000/acre. He didn’t want to sell at $1000/acre, and would not have signed the agreement if he had known he was tied to that price. But the agreement bound him to sell. He called us for help. Luckily, the company missed a deadline and we were able to get him out of that agreement.
However, it’s not just the price that is important. One woman we talked to signed an agreement like this at a very good price. However, once the title work came back it turned out she owned a lot fewer acres than she thought. The amount of money she would receive would not accomplish her goals so she wanted to get out of the deal but the company would not let her.
In general, don’t ever sign an agreement for anything without understanding what that agreement says. In particular, do not ever sign an agreement that “allows” a company to do title work on your mineral property. It’s a sneaky and underhanded way of binding you to sell your minerals, sometimes without you wanting to.
