CHAPTER 3 AN OVERVIEW OF COURTHOUSE RECORDS

• Jurisdiction: United States

Nuts & Bolts of Mineral Title Examination
(Apr 2015)

CHAPTER 3
AN OVERVIEW OF COURTHOUSE RECORDS
Peter M. Neidhardt
Landman
Arcwest Land and Consulting Services, LLC
Fort Collins, Colorado

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PETER M. NEIDHARDT has worked as an independent landman for more than nine years, during which time he has engaged in several types of land and title work, including HBP title, due diligence, leasing, title curative, royalty acquisition title, state and federal title, and abstracting. He has supervised crews as large as 30 people, has trained numerous landmen, and has title experience in seven states, including Colorado, Wyoming, Kansas, Montana, New Mexico, Utah, and Nebraska. Prior to becoming a landman, Peter worked for 12 years as an archaeologist conducting cultural resources compliance projects for a variety of undertakings in the Rocky Mountain region including oil and gas wells, seismic exploration grids, BLM land exchanges, coal mines, pipelines, fiber optic cables, and road rights of way. His primary duty as project director was to help clients, most often energy companies, navigate complex federal and state rules and regulations to get projects built in a timely and cost effective manner. Peter earned a Bachelor of Arts in Anthropology from the University of Wyoming in 1998, followed by a Juris Doctor from the University of Wyoming College of Law in 2004. Peter was a panel member for the Location of Title Records: Panel Discussion on Courthouse Procedure during the Rocky Mountain Mineral Law Foundation (RMMLF) Special Institute on the Nuts and Bolts of Mineral Title Examination (2012), and authored a paper, "An Overview of Courthouse Records," which was published as part of the same Special Institute. Peter is a member of both the American Association of Professional Landmen (AAPL) and the Denver Association of Petroleum Landmen (DAPL).

RECORD TITLE: A BRIEF OVERVIEW

In order to more fully understand the significance of courthouse records, a brief look at the underlying concept of title and how it operates within the context of real property may be helpful. Title, to most, is synonymous with the idea of ownership. A person or entity can own a variety of things including automobiles, airplanes, real property, and, of course, mineral rights. The key to perfecting or proving ownership is title, which by one definition is the "[l]egal evidence of a person's ownership rights in property . . . ."¹ In the case of real property, this evidence exists in the form of recorded instruments such as deeds and probate documents, which are components of what is known as record title.

Record title is used to prove ownership and is derived from instruments filed in the public record, which are found in real estate records at the county level.² The central idea is that the deed received by the purchaser of real estate is recorded in the county records and acts as "notice" to all subsequent would-be purchasers. Simply stated, the recording of the deed, which is the mechanism by which real property is conveyed, is a form of protection against the same property being sold twice. To record a deed or other instrument affecting real estate, the original deed is taken to the county in which the property is located; a copy is filed in the proper book, and the instrument is referenced in whatever index system is used. Recorded instruments are usually kept in books arranged by chronological order according to filing or recording date.³ The recording of instruments in the county records provides constructive notice to the public at large that an interest in real property has been created or modified. Constructive notice occurs when "[t]he purchaser is deemed to have notice of all recorded interests, whether or not the grantee in fact searches title," and is one of three types of notice, the other two being actual notice and inquiry notice.⁴

The primary function of the property recording system is to provide title assurance by reducing uncertainty in real estate transactions through the minimization of risk for both the buyer and seller. Generally, although this is not always the case, the first

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document to be recorded takes priority over later recorded interests in the same property.⁵ A secondary function of the system is to provide title evidence and information in order for prospective lenders, attorneys, purchasers, landmen, etcetera, can search the status of record title and to locate other recorded interests such as easements, oil and gas leases, restrictive covenants, mortgages, liens, and other encumbrances.⁶ Prospective purchasers will be bound by all recorded interests and may not later claim otherwise, and those properly recording interests in real property have the assurance that later purchasers must honor those interests previously recorded.⁷ This helps mitigate risk because the quality of title may be better evaluated before both the buyer and seller enter into a transaction.

Purchasers of real property are seeking title assurance exhibiting a certain level of quality. Title is often said to be "marketable," "good," "valid," "sufficient," "clouded," or even "perfect."⁸ A starting point for the quality of title is marketable title or merchantable title, which is a judicially-created, implied term of every contract that is defined by one authority as "generally to be a title that a prudent person with full knowledge of all the facts and legal consequences would be willing to accept . . . ."⁹ The marketable title standard operates as a form of title assurance and is considered to be title of sufficient character "that a reasonable buyer would accept it in a suit for specific performance."¹⁰ Conversely, unmarketable title is where there exists some probability the seller does not own the full title represented, the property is burdened by an undisclosed encumbrance, or the purchaser would bear an unreasonable risk to litigation because of the current state of title.¹¹ Both purchasers and sellers of real property want to encounter minimal defects that could impair the overall marketability of title. The same is true for mineral titles, which, in addition to conventional real estate transactions, are also evaluated against the marketable title standard.¹²

FORMS OF MINERAL TITLE EXAMINATION

Energy companies invest enormous sums of money and human resources in large-scale development projects, and because the starting point for such undertakings almost always involves some form of mineral ownership rights in land, accurate title examination is paramount. Before a project can proceed, mineral titles must be of

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sufficient quality to withstand potential competing claims from outside parties and hold up to judicial scrutiny. It is essential that instruments filed of record, upon close examination, demonstrate legally supportable projects that exhibit marketable title.¹³ Undiscovered title defects can have devastating and expensive consequences for oil and gas projects.

There are several different forms or types of mineral title examination. Frequently, the nature of the project, or the character of the mineral interest sought, will determine the level of scrutiny used and even who conducts the title investigation. There exists a multitude of complex mineral-related assets/interests that may be separated out and made the subject of an acquisition. However, at the risk of oversimplification, and for purposes of this paper, only the primary mineral interest categories and how they relate to the different forms of title examination will be mentioned here. The primary mineral interest categories include: (1) mineral interest ownership or fee interests; (2) working interests; and (3) royalty interests.¹⁴ Whether an exploration company is planning to lease, purchase, divest, or mortgage mineral assets, it will typically involve one of the above types of interests or some combination thereof. And, whatever form of title examination is used for the undertaking, it will almost certainly entail the research of county, federal, or state records.

A brief discussion of mineral title examination forms and reporting methods is presented below. Those listed are intended as a generalized representation of the more common types, not a comprehensive treatment of all possible variations.

Mineral Title Opinion

The title opinion is the most comprehensive and thorough form of mineral title examination, and is "[a] lawyer's or title company's opinion on the state of title for a given piece of real property, (usually) describing whether the title is clear and marketable or whether it is encumbered."¹⁵ The completed title opinion does not act as irrefutable "proof of title. Rather it is "a well-founded opinion that the legal system would lend its

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judicial support and enforcement powers to the recognition that ownership lies where the opinion states that it appears to."¹⁶ A mineral title opinion is typically an exhaustive reporting of all aspects of record title, including surface, mineral, leasehold and royalty interests for the subject tract of land. Additionally, an opinion will usually contain information about encumbrances, taxes, mortgages, easements, title defects, and title curative requirements; although content can differ somewhat depending on the type of opinion written.¹⁷

Mineral title opinions are based on either "stand-up" or "sit-down" searches. In a stand-up search, the examining attorney searches the public records in the county offices where the subject land is located. A sit-down search entails examination of a verbatim abstract of title prepared by someone other than the attorney, usually an abstract company or a landman. The abstract contains all instruments of record affecting title to the lands and may also include judgments affecting person or entities in the chain of title and tax payment records.¹⁸

The mineral title opinion is the best title assurance...