CHAPTER 10 MARKETABLE TITLE: WHAT IS IT? AND WHY SHOULD MINERAL TITLE EXAMINERS CARE?

• Jurisdiction: United States

Mineral Title Examination
(Sep 2007)
CHAPTER 10
MARKETABLE TITLE: WHAT IS IT? AND WHY SHOULD MINERAL TITLE EXAMINERS CARE?
Kraettli Q. Epperson
Attorney
Rolston, Hamil, Epperson, Myles & Varnum
Oklahoma City, Oklahoma

Kraettli Q. Epperson is associated with the Oklahoma City law firm of Rolston, Hamill, Epperson, Myles, & Varnum, where he practices real property law with an emphasis on state court litigation concerning title issues, and is often an expert witness on title examination and abstracting matters.

Mr. Epperson graduated from the University of Oklahoma with a B.A. in Political Science (urban administration); from the State University of New York at Stony Brook with an M.S. in Urban and Policy Sciences (urban planning); and from the Oklahoma City University School of Law with a J.D. He worked as an urban planner for 5 years before practicing law.

He has practiced law since 1979. Mr. Epperson has been Chairman of the Title Examination Standards Committee of the Real Property Law Section of the Oklahoma Bar Association since the middle of the 1980s. He also serves as an Adjunct Professor of Law teaching "Oklahoma Land Titles" at the Oklahoma City University School of Law, and frequently lectures, publishes and writes on real property law issues. His articles are available on his website, www.eppersonlaw.com, which also serves as the unofficial website for the Real Property Law Section of the Oklahoma Bar Association. He taught the Real Property portion of the Oklahoma Bar Review for several years.

Mr. Epperson is a contributor to the annual update for Basye: Clearing Land Titles, and is the General Editor of, and a contributing author to, Vernons 2d: Oklahoma Real Property Forms and Practice. He also conducts an annual survey of all 50 States to determine the status of their Title Examination Standards. Recently, he completed a review of all the states with current title standards providing a chart identifying the common chapter topics between the states, and has just completed a survey of the on-line county clerk land records available for the 77 counties of Oklahoma, which chart and survey results are available on his website. He is currently serving as the court appointed Receiver for 5 abstract companies in Oklahoma.

TABLE OF CONTENTS

AUTHOR'S RESUME

I. INTRODUCTION

II. CONSEQUENCES OF NOT SECURING MARKETABLE TITLE

III. DEFINITION OF MARKETABLE TITLE

IV. STATES WITH TITLE EXAMINATION STANDARDS

V. TITLE STANDARDS TOPICS IN STATES WITH CURRENT STANDARDS

VI. ON-LINE ACCESS TO COUNTY CLERK RECORDS IN OKLAHOMA

I. INTRODUCTION

The new title examiner needs to know the quality of title which the examiner must seek when preparing a title opinion, whether for surface or mineral titles. Such target quality might be valid, perfect, marketable, or merchantable. The first one only requires to enforceability between the two parties involved, while the next three are generally considered to be the same and relate to being enforceable against third parties. In the case of surface title, the purchase contract usually defines the required quality of title being sought. But in the case of mineral titles, the necessary level of title is usually dictated by state statute. In this article, those sample statutes dictating the consequences of failing to recognize that marketable title exists will be discussed.

If marketable title is the goal, then the practical definition of such title can usually be found in the state's title examination standards or in its marketable title act. A sampling of these definitions are displayed in these materials.

Through a chart comparing the chapter topics covered in several states' title standards, as well as through a listing of the standards chapter topics covered in selected states, the examiner is exposed to the standards available to assist during the examiner's title review. In addition, by way of example, a report is presented of the on-line searchable county clerks' land records that are available in Oklahoma.

In order to convince the examiner that it is important to learn what marketable title consists of, the author will focus first on the consequences of failing to seek and secure such title. Then the nature of marketable title will be explored, mainly through a review of several states' standards.

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II. IMPORTANCE AND CONSEQUENCES OF NOT SECURING

MARKETABLE TITLE

Obviously, one of the goals in mineral development and production is to minimize the costs of such efforts. While the mineral owner/lessor is entitled to receipt of royalty payments at an early time, the lessee would prefer not to pay for the minerals twice: once to the apparent but not the true owner, and again to the true owner. The legislatures of most states have enacted statutes penalizing the lessee to differing degrees for delays in the payment of proceeds, depending on whether the title held by the lessee is initially marketable. So long as the quality of the current apparent title holder is clouded -- to the extent that it is not deemed "marketable" -- the rate of interest which must be paid on the withheld proceeds is lower, usually one-half the full rate, than it is if it is in fact already marketable.

Below is, by way of example, a partial listing of the state statutes (for states in the RMMLF) concerning the rates of interest due and the dates when payments of royalties are to be made (excerpted from an article written by George Snell of Amarillo, Texas, and reprinted with his permission):

STATUTES-ROYALTY PAYMENT

ALABAMA
§9-17-33.	Sales, Distribution of Proceeds.

Interest rate-Marketable title:	12%
Interest rate-Unmarketable Title:	Federal Reserve Discount Rate in effect as
of first day of each month
Payment Due-First Sales:	6 months after first sales
After First Sales-Oil:	60 days after end of calendar month of sales
After First Sales-Gas:	60 days after end of calendar month of sales
Optional:	Semi-annual when the amount is less than
$60.00
Notice Requirements:	None
Escrow Provision:	None
Cases Interpreting:	None
History:	Acts 1982, No. 82-557

ARKANSAS
§15-74-601.	Time Limits Governing Oil and Gas Payments. (formerly 53-525)
§15-74-602.	Fraudulently Withholding Payments.
§15-74-603.	Action for Non-Payment of Proceeds.
§15-74-604.	Failure to Pay Royalties.

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Interest rate-Marketable title:	12%, unless contract provides greater; if
payment is suspended in bad faith. Court
may increase up to 14%, plus reasonable
attorney's fees.
Interest rate-Unmarketable Title:	None
Payment Due-First Sales:	6 months after the date of sales
After First Sales-Oil:	60 days after end of calendar month of sales
After First Sales-Gas:	60 days after end of calendar month of sales
Optional:	Annually if the amount is less than $25.00
Notice Requirements:	Yes; 30 days to respond
Escrow Provision:	None
History:	Acts 1981, No 269, §1; 1983, No. 448. §1;
A.S.A. 1947 §53-525

Cases Interpreting:

TXO Prod. Corp. vs. First National Bank of Russellville 288 Ark. 338, 705 S.W.2d 432 (1986)

Howell Petroleum Co. vs. Samson Resources Co. 903 F.2d 778 (10th Cir.-Ark., 1990)

Atlanta Exploration, Inc. vs. Ethyl Corporation 301 Ark., 331, 784 S.W.2d 150 (1990)

Seeco, Inc. vs. Hales 330 Ark. 402, 954 S.W.2d 234 (1997)

COLORADO
§34-60-118.5.	Payment of Proceeds,

Interest rate-Marketable title	2 times the discount rate at the Kansas City
Federal Reserve Bank as of the first day of
the calendar year when the proceeds
withheld.
Interest rate-Unmarketable Title:	None; compliance with deadlines is
suspended if there is unmarketable title or
reasonable doubt as to payor's identity.
Payment Due. First Sales:	6 months after the end of the month offset
sales
After First Sales-Oil:	60 days after each calendar month of sales
After First Sales-Gas:	90 days after each calendar month of sales
Optional:	Annually if the amount is less than $25.00
Notice Requirements:	Yes; 20 days to respond
Escrow Provision:	None
Cases Interpreting:	None
Source:	L. 89: Entire section added, p, 1374, §1,
effective 7/1/90

ILLINOIS
765ILCS§520/10.	Payments

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Interest rate-Marketable title:	The rate charged on loans to depository
institutions by the New York Federal
Reserve Bank
Interest rate-Unmarketable Title:	None
Payment Due-First Sales:	150 days after the end of each month of
sales
After First Sales-Oil:	60 days after the end of each calendar month
of sales
After First Sales-Gas:	90 days after the end of each calendar month
of sales
Optional:	Annually if the amount due is less than
$25,00
Notice Requirements:	Yes; 30 days to respond
Escrow Provision:	None
Cases Interpreting:	None
History:	Laws 1939, p, 805 §10, added by P.A. 84-872,
§2, Eff. Sept. 23, 1985 (formerly Ill.
Rev. Stat. 1991, Ch. 96 ½, paragraph 4910.)

INDIANA
32-5-9-1.	Crude Oil Purchases-Payment in 60 days.

Interest rate:	6%
Payment due:	Within 60 days from the date of title
examination
Notice Requirement:	None
Escrow Provision:	None
History:	Acts 1951, ch. 90, §1; P.L. 8-1993, §474

KANSAS-Interest on Proceeds from Production
55-614.	Interest payments on payment from oil or gas production; definitions.
55-615.	Same; Interest on certain payments required˜ commencement and
amount of payment; exception.
55-1616.	Same; Force and effect of waivers.
15-1617.	Same; Jurisdiction of Court to settle dispute; attorney's fees.
15-1618.	Same; Non-applicability to certain interest payments.
55-1619.	Same; Rights of payee not limited or impaired.

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Interest rate-Marketable Title:	1 1/2% above the interest rate charged on
loans to

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