Texas Title Insurance Mineral Coverage
By R. Scott Alagood
Since the early to mid-90’s the importance and value of minerals in North Texas has become clear. Where the surface of a property has been severed from the minerals underlying that property, serious problems can arise. The majority of purchasers of real estate want to utilize the surface of the property for a particular residential or commercial purpose. Because the minerals only have value when extracted from the land under which they sit, the rights of the mineral owner must supersede the rights of the surface owner. The mineral owner has a right to reasonably use the surface of land to develop its minerals. That right can easily interfere and come into conflict with the rights of the surface owner.
Owners and lenders must be aware of the potential interference of the surface by the mineral owner. State laws, local ordinances, specific mineral lease terms, and court rulings may provide some protection against interference with the use of the surface estate by the mineral owner. Recently, Texas title insurance has changed to also provide some protection in certain specific situations.
Where the surface use is paramount to the value of the land, such as an office building, retail center, single family residence, apartment complex, warehouse, manufacturing plant, or other surface intensive use, a prospective purchaser or lender may want to consider utilizing one of the T-19 endorsements to insure potential damage to the surface resulting from the development of the mineral estate. The T-19 endorsements consist of four separate endorsements.
The T-19 Restrictions, Encroachments, Minerals Endorsement may be utilized by a lender. The T-19 provides other coverages beyond interference by the mineral estate. With respect to the mineral estate, it insures the lender against loss sustained by reason of damage to an “Improvement” located on the property on the date of the policy or existing thereafter resulting from the exercise of a right to use the surface of the property for the extraction or development of minerals. The term “Improvement” is defined as an improvement that constitutes real property and includes landscaping, lawn, shrubbery, or trees which are affixed to the insured property. The T-19 endorsement cost is 5% of the basic premium for residential property and 10% for commercial property, but will not be less than $50.00.
The T-19.1 Restrictions, Encroachments, Minerals Endorsement may be obtained by an owner. As with the T-19 endorsement, it also protects against matters other than interference by the mineral estate. With respect to the mineral estate, it insures the owner against loss sustained by reason of damage to an “Improvement” located on the property on the date of the policy or existing thereafter resulting from the exercise of the mineral owner’s rights (same as the T-19). However, the definition of “Improvement” in the T-19.1 is different than that in the T-19. The T-19.1 provides coverage for buildings, structures, roads, walkways, driveways, or curbs which constitute real property, but excludes crops, landscaping, lawns, shrubbery or trees. The T-19.1 endorsement cost is 10% for a residential property or 5% if purchased along with the survey exception amendment (which is 5% for a residential policy, and 15% for a commercial property or 10% if purchased along with the survey exception amendment (which is 15% for a commercial policy). As with the T-19, the minimum premium for the endorsement is $50.00.
If an owner or lender is not interested in the additional coverages provided by the T-19 and T-19.1 endorsements (beyond that provided by the mineral estate) or if the price tag for those endorsements is too steep, then a T-19.2 or T-19.3 endorsement may be the way to go. These two endorsements both generally insure against damage resulting from the development of the mineral estate. However, they differ in a few ways.
The T-19.2 insures against damage to “permanent improvements (excluding laws, shrubbery, or trees)”, while the T-19.3 insures against damage to “permanent buildings”. In essence, the T-19.2 will provide more coverage for damage to “improvements” which includes “permanent buildings” and other “improvements”, where the T-19.2 will only insure damage to “permanent buildings”.
Additionally, the T-19.2 may only be issued for real property of one acre or less improved or intended to be improved for one-to-four family residential use or for real property improved or intended to be improved for office, industrial, retail, mixed use, or multifamily purposes. Where the property is not of the type allowed under the T-19.2, the T-19.3 may provide mineral coverage for permanent buildings.
Both the T-19.2 and T-19.3 endorsements may be issued for either an owner’s or lender’s policy. For a residential or commercial owner’s policy, the endorsement cost is $50.00. There is no cost to include either endorsement in a lender’s policy.
While a title insurance underwriter is not legally required to issue these endorsements, in most situations they will. So don’t be afraid to ask for the additional coverages provided by these endorsements where it may be appropriate.
R. Scott Alagood is Board Certified by the Texas Board of Legal Specialization in both Commercial and Residential Real Estate Law and may be reached at [email protected].