I own mineral rights in various North Dakota counties, all of them 5 net acres or less. I am also applying for loan assistance under a HUD-funded program and need to provide asset verification on these mineral rights. For the producing properties, I can probably use a formula that ND Medicaid uses for asset verification, but for the non-producing properties it looks like I will have to get a determination by an expert. I am wondering what it is likely to cost to get that determination and what the cheapest way to have that done would be. Is this possibly something my bank could help with? The non-producing assets are in Stark and Golden Valley counties. The last time a value was assigned in connection with a transfer was back in 1993, when my husband inherited some of them. He later added me as a joint owner so there was no asset determination in that connection when he passed away. Others he had purchased in the early 1980's, either way those amounts would be very out of date.
Sheri,
I think you mean "asset value verification" and I don't mean to put a damper on you loan application process but you shouldn't depend on non-producting mineral properties as loan collateral. In the strict definition of asset value used by the SEC and other regulators, non-producing properties usually have no "Reserves", a term of art in finance, and therefore no fair market value. It is also my experience that medicaid rules are outdated and misused and would not hold up if aggressively challenged so I doubt if any bank would take them seriously as a financial basis for collateral. However, because of the general location of your minerals, the long term prospects for the area, and known presence of geologic potential, your land may have some speculative value. "Speculative value" has little if any influence on banks but other entities may be willing to make transactions that will increase your cash in the near term but not your collateral strength from minerals.
If your minerals have been so identified so as to have no doubt as to the presence of economically producible quantity and quality, a professional appraiser may be able to assign a value but that is a very difficult test to meet in your area. A well involving your minerals would have to have been drilled, completed,and proven capable of producing in paying quantities to qualify. In other words, Proven but Shut in.
It is best to focus on verifying the value of other assets.
Gary L. Hutchinson said:
Sheri,
I think you mean "asset value verification" and I don't mean to put a damper on you loan application process but you shouldn't depend on non-producting mineral properties as loan collateral. In the strict definition of asset value used by the SEC and other regulators, non-producing properties usually have no "Reserves", a term of art in finance, and therefore no fair market value. It is also my experience that medicaid rules are outdated and misused and would not hold up if aggressively challenged so I doubt if any bank would take them seriously as a financial basis for collateral. However, because of the general location of your minerals, the long term prospects for the area, and known presence of geologic potential, your land may have some speculative value. "Speculative value" has little if any influence on banks but other entities may be willing to make transactions that will increase your cash in the near term but not your collateral strength from minerals.
If your minerals have been so identified so as to have no doubt as to the presence of economically producible quantity and quality, a professional appraiser may be able to assign a value but that is a very difficult test to meet in your area. A well involving your minerals would have to have been drilled, completed,and proven capable of producing in paying quantities to qualify. In other words, Proven but Shut in.
It is best to focus on verifying the value of other assets.
Gary L Hutchinson
Minerals Management
Thanks for the information. The twist here is that I have to prove any assets I have are *under* the limit for the program - this is a federally funded program under HUD, so assets can't exceed a certain amount and aren't used as collateral. This becomes a matter of the program having to comply with the federal rules it's set up under, and hopefully doing that with the least amount of time and expense. I understand and agree with what you say about the the speculative nature of non-producing properties. I have a bit in Texas as well, and Texas actually has an assessment process and charges property taxes, so for purposes of this program I have a recognized asset value for that piece, I just don't for acres in North Dakota.
Sheri McMahon said:
Gary L. Hutchinson said:Sheri,
I think you mean "asset value verification" and I don't mean to put a damper on you loan application process but you shouldn't depend on non-producting mineral properties as loan collateral. In the strict definition of asset value used by the SEC and other regulators, non-producing properties usually have no "Reserves", a term of art in finance, and therefore no fair market value. It is also my experience that medicaid rules are outdated and misused and would not hold up if aggressively challenged so I doubt if any bank would take them seriously as a financial basis for collateral. However, because of the general location of your minerals, the long term prospects for the area, and known presence of geologic potential, your land may have some speculative value. "Speculative value" has little if any influence on banks but other entities may be willing to make transactions that will increase your cash in the near term but not your collateral strength from minerals.
If your minerals have been so identified so as to have no doubt as to the presence of economically producible quantity and quality, a professional appraiser may be able to assign a value but that is a very difficult test to meet in your area. A well involving your minerals would have to have been drilled, completed,and proven capable of producing in paying quantities to qualify. In other words, Proven but Shut in.
It is best to focus on verifying the value of other assets.
Gary L Hutchinson
Minerals Management
Sherri, You better learn fast about trying to go through govt. loan programs. In my opinion I would forget trying to get the loan and tie up my assets no matter how much or how little they might be.
Texas does not charge taxes on non producing minerals. The taxes begin if and when they come into production. Non producing minerals are not taxed yearly in Texas.
What I have in Texas is small, I think I get one check a year and offhand don't recall how much. I hadn't gotten tac statements for a few years and finally called and was told they do not send a tax bill if it's under $500. So that would mean the income from it?
The loan program is unrelated. I am cursed with a big old house my husband had bought and was too till to fix up. I was out of the work force for several years taking care of him and raising our son, who had serious mental health issues when younger (but is self-employed and self-supporting and an awesome young man, hurray!). I had the great fortune of being a re-entry worker in 2009 and looking for a job when every employer was laying off or workers afraid to leave their jobs for fear of not finding one. Fortunately, after one part time job, one bad match (where the employer let me go because I "over-analyzed" but really did not fit into a truly toxic workplace culture), and one temp job, I found a position which I've had for three years and counting and which has no indication of going anywhere, even after we were acquired by a multinational corporation (we are a very specialized service in a niche which is extremely resilient no matter what the economy does, and we have a lot of acquired knowledge that is not easily transferable). Like they say, the most valuable asset you can have is a secure job!
The roof was three layers of shingles (1 cedar and 2 asphalt) and was past due for repair when my husband (deceased) bought the property. The rehab loan would allow me to replace the roof based on a deferred interest loan which is forgiven if you stay in the house for 10 years, via a lien on the property so if I were to sell they would get their money back. Of course, the city also gets the benefit of increased value for the property and thus increased property taxes, including--the theory goes--on other properties in the same neighborhood since it helps sustain or improve market prices in the neighborhood. I do own the property outright and avoid touching any assets I do still have. So anyway, this loan would not tie up the mineral rights in any way, shape, or form, but there is a cap on the assets one can own in order to qualify. I agree about not tying up assets, but where the house is concerned it's a win win.
For what it's worth, I receive around $1000 a year total in royalties from mineral acres in production. Right now that helps me contribute to my 401k at the maximum rate my employer allows.
The presumption followed by the IRS is that a non-producing mineral right is worth nothing.
Andrew, is it possible you can provide a citation or link to IRS information?
Ill look for one. If you ,eerily list those assets with a market value of “$0” the burden will be on the IRS to rebut your estimate. They will not be able to do this without providing comparable sales data, which is not public information.
Thanks to people who provided information. The city has decided to regard non-producing rights as speculative and I won't have to provide appraisals. They will have me provide income documentation for the producing sites.
Andrew, I am not trying to dispute this with you. Where can we look up this information about valuing non-producing minerals as far as estate settlement is concerned and the tax code?
Andrew said:
Ill look for one. If you ,eerily list those assets with a market value of "$0" the burden will be on the IRS to rebut your estimate. They will not be able to do this without providing comparable sales data, which is not public information.
I did find information in an IRS publication related to charitable giving. As I recall, the IRS required a formal appraisal if the charitable claim for tax purposes was $5000 or over. If I find that link again I will post it. When my husband's father passed away (he acquired some of these properties from that estate) the lawyer who handled the estate prepared a statement of their value, which was not high at the time (in the mid-1990's in ND, a few in Illinois). I don't know what he used as a basis for the stated value, but it was never challenged.