Royalty Interest Acquired in Tax Sale

Has anyone every acquired a royalty interest through a county tax sale in TX?

My understanding is that there is a 2 yr. redemption period where the owner of the interest that was sold for delinquent taxes can pay the penalties and interest and redeem the property. The purchaser in the tax sales is issued a Sherrif’s deed to the property, would the royalty payor’s typically put royalty payments into suspense in these cases or would they pay the new owner who acquired the interest at the county tax sale?


You are correct about the redemption. If the property comes with minerals, then notify the producer after you buy it and they will probably put the royalties in suspense until the redemption period runs out.

My understanding in Texas is that if you acquire a sheriff's deed to the royalty, you must notify the operator immediately (so you can get paid). However, royalties that may have accrued prior to the sale, you have no legal rights to. There is a court case somewhere on these specifics I have read before. The royalties in suspense (before sale) would be paid only to the previous owner, or eventually paid to the state as unclaimed money.

I spoke with a law firm about the redemption period and was told 6 months on royalty interest only property. It is specified in the property tax code somewhere also (but don't quote me on 6 months without verifying yourself).
Also remember - In Texas if the property sold at a tax sale is land or buildings, then you do not receive the mineral interest or royalty interest.

If the property being sold is a royalty interest, then you are acquiring only the royalty interest, and not mineral interest or surface property.

My understanding is that you acquire the title owned by the previous owner, whether mineral, royalty or surface, severed or not, as they owned it. There will be a date in the Sheriff’s deed when interest is severed from the previous owner, by judicial decree, and becomes vested in the new owner. The redemption period for residential, agricultural or mineral rights is 2 years, with a 25 % redemption penalty the first year and 50 % the second year. Any overage, in excess of back taxes and court costs, is paid to the original owner, from the auction. I watched a $10,000 minimum bid Royalty Interest property bring more than $400,000.00 at a Sheriff’s sale in Texas on September 3, 2013.

Someone else may be able to clarify more on this matter, but here is my understanding:

A royalty interest that is taxable is not the same as a mineral interest that is taxable. In Tarrant County (and several other counties in Texas I am familiar with) we do not tax mineral rights. We DO tax royalty interest (so if you own your mineral rights, and there is production, you are assessed taxes against the royalty interest aka production of minerals). This creates an issue of real property vs personal property. In Texas, mineral rights or mineral interest is considered "real" property, as the minerals are "in place". When the minerals are developed and brought to the surface of the earth, and you have a right to income (royalty interest, overriding interest, working interest, etc) it is now "movable" and no longer "in place". These kinds of interests are taxable as personal property, since personal property can be "moved" (easily), unlike real property.

I'm sure everyone is aware of this but I will say it: Every state is different. The kinds of taxes enacted in each county may be different. Some counties may tax minerals, some may exclude taxing royalties. Tracking the ownership for minerals can be very difficult for a county to do, as people die and a single residential lot with severed minerals could have 100 owners in the mineral estate, each with different kinds of ownership. So getting copies of the division orders from the operators and taxing only royalty interest owners is more than likely much easier, and common place (in Texas - from my experience).

Camille - I have been watching and seeing similar sales lately as well.

Here are the Texas rights of redemption rules regarding REAL property:

Texas A&M Real Estate Center guide to foreclosure and tax sales - 6 months redemption on all property sold OTHER than "real" property. I believe this includes taxable royalty interest and similar interests.

Texas Oil & Gas Real Property vs Personal Property (See page 34)

Definitions of "Real Property" for Texas

Here is the Texas case involving the purchaser of a surface property at a tax sale that sued to gain the royalty interest that was present at the time of sale:

Here is the case involving someone who bought a royalty interest at a tax sale and sued to get royalties held in suspense and lost.