In this episode, we discuss common scams that target mineral rights and royalty owners. These scams occur in different states across the country and often take advantage of the limited knowledge that many mineral royalty owners have. There are three main types of scams that have become popular in recent years. Specifically, the “finders fee” or “unclaimed royalties scam”, the “royalty lease scam,” and the “fraudulent deed scam.”
We will also provide tips on how to avoid falling victim to these scams and discuss potential actions to take if you or a family member are caught up in one. It is important to note that seeking help from an attorney is necessary in these situations, so this should not be considered legal or tax advice. Be sure to consult a competent attorney in the state where your minerals or royalties are located.
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The Finder’s Fee Scam
The finders fee scam involves individuals reaching out to mineral owners and offering assistance in recovering unclaimed royalties on properties. These scammers typically target owners with substantial funds being held in suspense by oil and gas operators. By taking advantage of the lack of knowledge among mineral owners, these scammers offer their services to claim the funds in exchange for a finder’s fee. The conversation highlights the need for caution when dealing with such offers, as scammers may manipulate language and terms to exploit unsuspecting owners.
For example, in our last Listener Q&A Episode, Mike shares a letter that he received that was offering to help him claim royalties that were being held in suspense in exchange for 20% of the unclaimed royalties as well as 20% of his mineral interests:
Our group is in the business of searching for mineral/royalty interests that belong to owners who are considered lost or missing by various oil companies. We then contact those lost or missing owners and make them aware of the matter. If appropriate, we offer our services which include further research, title curative and assistance with getting the owner in pay status ready to receive royalty payments from the oil company.”
Excerpt from a letter received by a listener
While finder’s fees paid in exchange for helping resolve unclaimed royalties on behalf of a royalty owner is not illegal, several states have enacted legislation that caps the finder’s fee at a certain amount. For example, Texas caps the finder’s fee at 10% for providing certain services. The way that companies try to get around this is by offering additional services such as title curative (e.g. probate or determination of heirship) as part of the fee.
When the amount of money at stake far exceeds the typical compensation for these types of services, it might be considered a scam. These predatory practices look to exploit unsuspecting and uninformed royalty owners.
By seeking legal guidance and thoroughly examining all documents, mineral owners can protect themselves from potential exploitation and ensure their interests are safeguarded.
The Royalty Lease Scam
Transitioning to the royalty lease scam, we discuss the deceptive practices employed by scammers in this scenario. Scammers contact mineral owners, presenting them with what appears to be a top lease offer. A top lease is signed before the termination of an existing lease and becomes effective only if the existing lease expires. However, scammers use this guise to trick owners into signing a term royalty deed, which actually transfers their royalty interest to the scammer. By disguising the transaction as a lease, scammers can offer significantly lower compensation for the relinquished royalties. Again, this is why it is important to review all documents before you sign them and seek legal advice to prevent falling victim to such scams.
Because of the prevalence of this scam in Texas, that state enacted legislation that now requires specific language to be included in all oil and gas royalty leases, clearly stating that it is not an oil and gas lease but a term royalty deed. This legal requirement aims to enhance transparency and protect mineral owners from unknowingly relinquishing their interests. If an unsuspecting Texas royalty owner signs a term royalty deed without the required language, it is considered to be void. That said, many states do not have these protections in place.
Fraudulent Deed Scams
The final type of scam we will discuss is the use of fraudulent deeds. A fraudulent deed is a deed that transfers property without the owner’s knowledge and/or consent. For instance, it may transfer your mineral interests to another individual or company through the forgery of your signature, without providing any compensation for the transfer of your mineral rights. There have also been instances where mineral buyers have forged a seller’s signature on documents that allow them to claim royalties held in suspense without the seller’s knowledge.
Some counties offer notification services that allow you to sign up for alerts if any instruments containing your name or a specific legal description are recorded.
Summary
Regardless of the situation, it is crucial to have an attorney review any documents before signing them. This serves as an insurance policy to protect against being taken advantage of. Please share this episode with friends and family to raise awareness about these red flags and warning signs associated with these scams.
Resources Mentioned in this Episode
- MRP 103: How to Find Out if You Have Unclaimed Royalties
- MRP 212: Listener Q&A – Leasing, unclaimed royalties, investing, depletion deduction, and more!
- MRP 9: Royalty Leasing Scams Beware!
- Securities and Exchange Commission (SEC): Oil and Gas Scams: Common Red Flags and Steps You Can Take to Protect Yourself
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