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Tax Sales of Mineral Rights

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I've added a new section to my book, "Alabama Tax Sale Investing."  It deals with tax sales of  mineral rights. The section does not set out a strategy for people interested in mineral rights. That will vary depending on the type of minerals, and each investor's goals. It DOES talk about possession issues. Because I talk about this constantly, you should all know by now that the owner has additional time to redeem if the tax sale purchaser has not taken possession of the property. As I tell you all the time--do whatever you can to take possession as soon as you get your tax certificate. I've talked about possession of raw land, and vacant lots, in other posts and other parts of my book. This new section deals will the peculiar problems related to taking possession of mineral rights. Pretty much the only real way to do that is to excavate the coal, or drill and remove the oil, etc.  Who would spend all the money to do that unless they were REALLY sure there were no more redemption rights? The Alabama Supreme Court addressed this exact issue in 1974, in the case of Nelson v. Teal, 293 Ala. 173, 301 So.2d 51 (1974).  Here is an excerpt from my book:

"If you buy mineral rights at a tax sale, how do you possess them without actually removing them? As you might already know, if you take minerals during the redemption period, then the owner gets a credit for the value of those minerals when he redeems. The Alabama Supreme Court recognized this problem when it said:

“The only way to possess a mineral interest, aside from the assessment and payment of taxes, is the attempt to excavate the minerals or lease them to another for that purpose. It is common knowledge that no one is going to invest the required capital for the excavation of minerals in the absence of a legal title to the same and that during the three year period in which a tax deed cannot be executed, it is impossible for a purchaser at a tax sale do exercise any possession except the assessment and payment of taxes.”

"In the case that resulted in the quote above, the mineral interests and surface rights had been severed (separated) for some land in Escambia County. The mineral rights were taxed separately from the surface rights. Nelson owned the mineral rights, and failed to pay his taxes. His mineral rights were sold to Teal in 1965. Seven years later, in 1972, Nelson filed a lawsuit to redeem from the tax sale. He claimed he was allowed to do that, because Teal never took possession of the minerals.

The Alabama Supreme Court made the comment quoted above, and reasoned that it is virtually impossible for a tax sale purchaser of the minerals to possess the minerals. They did take notice of the following things done by Teal:

  1. Shortly after the tax sale, Teal sent Nelson a certified letter telling him about the tax sale.
  2. When he received his tax deed in 1968, Teal sent Nelson another certified letter telling him about the tax deed and declaring he was “going to take possession.”
  3. Later in 1968, Teal executed an Oil, Gas & Mineral Lease.
  4. In 1971, Teal sent Nelson another certified letter.
  5. In early 1972, Teal executed two instruments called “Transfer of Royalty and Mineral Interests.
  6. Nelson never responded to a single letter, but filed his lawsuit against Teal in late 1972.

"The court said, “Teal not only had a right to demand a deed—he had a deed, which was valid on its face. It constituted color of title to the mineral estate described in it. The effect of Teal’s tax deed was to vest in him the title to the mineral estate, subject to Nelson’s redemption rights. We hold that Teal’s acts were sufficient to start the running of the three year short statute of limitations. Consequently, Nelson’s suit was not filed in time.”

"Bear in mind, this case applies ONLY to tax sales of mineral interests. The court specifically said it did not apply to tax sales of surface rights, or property that included both surface and mineral rights, together."

I hope you find this information useful if you invest in tax sale mineral rights, or plan to invest in them.  If you have any comments or questions you would like to share, please send them in!

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  • has anyone had a total hazard loss on insured property within three years of purchase at tax sale – did the insurance company pay off even though the insured didn;t have title and the property was subject ti redemption? my insurance agent says i’;; get paid if it happens – is there something i should get in writing?

    howie on

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