CHAPTER 3 TITLE EXAMINATION OF FEE LANDS INCLUDING SEVERED MINERAL INTERESTS

• Jurisdiction: United States

Mineral Title Examination
(Nov 1977)
CHAPTER 3
TITLE EXAMINATION OF FEE LANDS INCLUDING SEVERED MINERAL INTERESTS
Thomas J. Nance
Holme Roberts & Owen
Denver, Colorado

I. INTRODUCTION

For purposes of this paper, "fee" lands are lands owned by private parties, rather than by a governmental body such as a state or the federal government in any capacity, and severed mineral interests are merely interests in the minerals underlying such lands, the ownership of which has been severed or separated from the ownership of the surface.

Because the examination of title to any type of land is a complex subject and beyond the scope of any one paper, and because of the relative position of this paper in this Institute, this paper is limited to certain basic fundamentals relating to the customary source material and examination procedure used by lawyers in connection with examinations of title to fee lands for oil and gas purposes. Although the title of this paper is limited to fee lands, and it is included in the oil and gas portion of this Institute, it is the first on actual title examination and most of these fundamentals will apply to an examination by a lawyer of any type of land in the United States of America for any purpose. Of course, the purpose of a title examination (e.g., leasing, undeveloped or productive leasehold acquisition, drilling, division order or security), the relative value of the property examined and the special desires and instructions of the client will affect the fundamentals employed in any examination, but this paper has been written to describe a rather complete title examination.

It is often said that there are two types of examination of title: record examinations and office examinations.¹ Generally speaking, a record examination is an actual examination of all of the pertinent instruments in the appropriate public records, and an office examination is an examination of an abstract of title in the lawyer's office. At the present time, the normal practice in the oil and gas industry is an office examination, but, as will be explained later, it is a frequent practice to supplement an abstract examination

[Page 3-2]

with an examination of copies of certain instruments, both recorded and unrecorded. However, occasionally time will not permit obtaining an abstract and a record examination is required to meet a deadline. In some situations where large blocks of acreage are involved, it may be less expensive for the client for the lawyer to make a record examination, rather than purchase a voluminous abstract to examine. Also, a suitable abstracter may not be available or the abstracter may not be willing or able to prepare the desired abstract. In any event, most of the basic fundamentals covered by this paper should be applicable to either type of examination.

II. SOURCE MATERIAL

The source material which should be examined by a lawyer in order to make an examination and render an opinion for a particular purpose or render a certain form of opinion always must be determined by the lawyer based upon local statutes and judicial decisions, practice in the local area and sound professional judgment.²

Set forth below are some of the source material which should be included in an examination of title to fee lands, including severed mineral interests, for oil and gas purposes. Obviously, this list is not exhaustive. State law may require the examination of more or less material than is discussed in this paper. Also, as mentioned above, the client may desire to limit the examination to only certain material or to interests in the land of less than all of the owners. For example, when the client is purchasing an interest in a producing property the examination may be limited to the purported interest of the seller, and in the case of a security opinion for a lender the opinion is normally limited to the interest of the borrower which is offered as collateral for the loan. Also, because most lawyers charge for title opinions at an hourly rate, the client may desire to limit the volume of material to be examined. That, of course, is the client's privilege but the client always should be warned of the limitation and its impact in the lawyer's written opinion.

A. County Real Property Records

The official real property records of the county in which the land is located are the basic source material for all examinations of title to fee lands, and these records must be examined, either directly or indirectly. The importance of these records is established by the recording

[Page 3-3]

statutes of the state in which the land is located, and the lawyer must familiarize himself completely with all of the pertinent provisions of those statutes.

Although this paper does not attempt to cover the specific laws of any state, in general these statutes limit the validity and effect of an unrecorded instrument affecting title to real property and result in everyone having constructive notice of all of such instruments recorded in the local real property records.³ There are three distinct types of recording statutes, (1) notice statutes, which place no premium on the "race" to the local recorder's office and protect the bona fide purchaser whether he files for recording first or not,⁴ (2) race-notice statutes, which place a premium on the "race" to the local recorder's office and protect the bona fide purchaser only if he files first,⁵ and (3) race statutes, which place the ultimate premium on the "race" to the local recorder's office and protect the purchaser, whether he had actual notice or not, if he files for recording first.⁶ Obviously, the lawyer must understand the pertinent recording statutes in order to unravel a complex chain of title.

Also, the lawyer must become familiar with the types of indices to the recorded instruments maintained in the local recording offices in the state in which the land is located.

When an instrument affecting title to real property is filed for recording in the local recording office, normally the office of the county clerk and recorder, it is copied in full, normally at the present time by a photographic process, and placed in a bound book. The copies are placed in the books in the order that they are filed and each book contains copies of many instruments which affect title to many tracts of land in the county. When one book is full, another one is started. Obviously, it would be extremely difficult, if not impossible, to locate a particular instrument or to examine title to a particular tract of land unless some type of index is maintained from which a lawyer can locate a reference to the book and page at which the complete copy of the instrument is located.

In every state the local recorder maintains a "grantor-grantee" index⁷ in which each recorded instrument is indexed by both the name of the grantor and the name of the grantee as shown in the instrument, which names are arranged in the index in alphabetical order. In order to use

[Page 3-4]

these indices in an examination of title, a lawyer must first establish a starting point. For example, the starting point could be the oil and gas lease to the lawyer's client. In that case, the lawyer can search the alphabetical grantee index in the county in which the leased land is located, back from the most recent entry until he finds indexed the lease to his client. Normally, the indexed reference to the lease will set forth the book and page at which a complete copy of the lease may be located, a brief description of the leased land and the name of the lessor. Then the grantee index can be searched back until a deed to the lessor is located, and the process can be repeated in the appropriate grantee index until the original patent to the land is located, assuming there are no gaps in the recorded chain of title. The grantor index must also be searched forward to determine whether any prior grantee of the land made any conveyances or incurred any encumbrances prior to the conveyance to his grantee revealed in the constructed chain of title.

Unfortunately, this process is not as simple as it sounds. In a well populated county there is a delay in indexing the recorded instruments, there may be a statutory grace period, the grantor index and the grantee index for a particular year each may consist of one or more volumes for each letter in the alphabet, although at varying periods the annual indices may be consolidated and reconsolidated, and much time is consumed in the actual physical handling of the large books containing the material to be examined. Also, there is the question of whether you must search the grantor index as to each successive owner prior to the date when he acquired title because of "wild" instruments containing warranties of title, such as warranty deeds or mortgages, executed by a party who later acquired title to the land, or by an ancestor of his, and there may be gaps in the chain of title explained only by instruments outside of the chain. As a result, the examination of title using only a grantor-grantee index is at best a cumbersome job.

Fortunately, some states also have authorized a tract index which does not replace the grantor-grantee index in a state but is in addition to it.⁸ In a tract index a recorded instrument is indexed under the description of the land covered by the instrument, rather than under the names of the parties, and, in the western states, the tracts of land under which instruments are indexed are normally the regular subdivisions under the rectangular governmental survey system. Thus, in order to examine the title to a particular tract of land, a lawyer must search the index

[Page 3-5]

covering that land to locate all recorded instruments relating to that land from the original patent until the date of the search. The indexed reference to each instrument normally will set forth the book and page at which a complete copy of the instrument may be...