Common sense would tell you that selling minerals and royalties is like selling real estate. That’s not a crazy assumption -- after all, mineral rights are essentially just subsurface real estate. However, there are some significant differences you should be aware of.
If you’ve ever sold a house, you know that once a purchase contract is signed, the title company typically handles the bulk of the to-do’s. They issue the title insurance policy, complete the title research, and serve as escrow for the closing documents and funds. Selling minerals is very different (and that’s generally a good thing!) as there’s a lot less paperwork and no title company to pay. To further explain, let’s break down how a typical mineral transaction works so you can avoid any unexpected surprises.
Let’s say you’ve weighed your options, evaluated all your offers, and signed a PSA (Purchase Sale Agreement). That’s certainly progress! Here’s what happens next:
The Buyer will send a landman to the county courthouse to “run title” in order to confirm your ownership. This due diligence process generally takes roughly 30 days. If it is a large enough acquisition, they may even hire a title attorney to render a title opinion. Regardless of their methods, the Buyer will pay for all standard costs associated with the title research.
Pro Tip: During the due diligence period, the Buyer may request copies of leases, check stubs, or other supporting documentation. This is perfectly normal -- this additional information simply assists them in piecing together the title puzzle (and often expedites their research)Once the Buyer completes their due diligence and clears title, they’ll send you a Mineral Deed to review. Depending on the type of interest, this document may also be called a “Conveyance” or “Assignment” instead of a “Deed”. This is a relatively short document, usually around 4 pages or so. If you’re unfamiliar with the deed language, you may want to have an attorney review prior to signing.
Around the same time that the Buyer sends you the deed, they will also request three things: your bank account details for the wire transfer, a completed IRS Form W-9 for tax reporting, and a Non-Foreign Affidavit.
Pro Tip: Call your bank and confirm that your wire information is correct before providing it to the Buyer. This will help to ensure there are no complications during the transfer of funds.
Once you’re ready to execute the Mineral Deed, you’ll need to sign it in front of a notary public. The Buyer will request a copy of the deed to serve as proof that the deed is signed and notarized correctly. The best practice is to make a photocopy of your signed and notarized original Mineral Deed, and write “COPY” on each page of the photocopy. (DO NOT WRITE ON THE ORIGINAL SIGNED DEED!) Email or fax the photocopy version that says “COPY” on it to the Buyer. It’s perfectly okay to provide the Buyer with a copy as it cannot be legally filed in the courthouse. County clerks will only accept the ORIGINAL Mineral Deed for filing.
Pro Tip: Never send the original signed deed to the Buyer until you’ve been paid in full. Be very wary of any buyer who insists that they need the original before they can pay you. Legitimate buyers are perfectly willing and able to pay you before they have the original in-hand.Upon receiving a copy of the fully executed deed, the Buyer will initiate a wire transfer to your bank account for the agreed upon purchase price and then ask you to confirm receipt of funds. Domestic wire transfers typically take 15-30 minutes to hit a bank account. Be sure the entire payment is listed in your “Available Balance” before telling the Buyer that funds have been received.
After you notify the Buyer that you’ve received payment, they will send you a prepaid FedEx overnight shipping label for the ORIGINAL Mineral Deed. It’s customary and courteous to mail the deed to the Buyer on the same day as funds are received.
Once the Buyer receives the envelope containing the original deed, they will file it with the county clerk at the courthouse and pay all recording fees.
That’s it. Congratulations are now in order!