CHAPTER 4 PRACTICAL ASPECTS OF PREPARING WORKSHEETS, CHAINING TITLE, AND DOCUMENT INTERPRETATION

• Jurisdiction: United States

Nuts & Bolts of Mineral Title Examination
(Apr 2015)
CHAPTER 4
PRACTICAL ASPECTS OF PREPARING WORKSHEETS, CHAINING TITLE, AND DOCUMENT INTERPRETATION
Gregory J. Nibert ^*
Partner
Hinkle Shanor LLP
Roswell, New Mexico

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GREGORY J. NIBERT received a Bachelor of Arts degree from the University of New Mexico in 1980 and received a Juris Doctor degree, cum laude, from Pepperdine University in 1983. He was Editor in Chief of the Pepperdine Law Review for 1982-83. He is a partner in Hinkle, Hensley, Shanor & Martin, L.L.P. and is a New Mexico Board of Legal Specialization recognized specialist in Oil and Gas Law. He is listed in The Best Lawyers in America since 1993, Chambers USA America's Leading Lawyers for Business since 2005, and Southwest Super Lawyers since 2007. Mr. Nibert is Treasurer of the Rocky Mountain Mineral Law Foundation and is a past president of the Independent Petroleum Association of New Mexico. He is Chairman of the Chaves County Commission. He and his wife, Carolyn, have two sons, Greg, Jr., an oil and gas attorney in Denver, and Jeff, a senior at UNM.

This paper provides an overview of one method of preparing worksheets from instruments appearing in an abstract or through a physical examination of county, state and/or federal records, how to then turn that information into a chain or multiple chains of title, and constructing a review sheet in anticipation of preparing a title opinion. The material presented is not new as this issue has been addressed in prior Special Institutes of the Foundation.¹ This paper does not discuss the use of computers that may automatically chain the title, which was presented at a fairly recent Special Institute.² In addition, the paper will discuss briefly several document interpretation issues that you must understand to properly take notes on the instruments examined and to credit the interests in the chain of title.

I. INTRODUCTION

The prior papers in this Special Institute have discussed in detail where the source materials are located and made available to the public. The purpose of this paper is to show you how to take the submitted materials, or the records if you are conducting a physical examination of the records in the county courthouse and any appropriate state or federal offices, and compile the notes and chain of title to prepare a title opinion. The information in this paper is useful for preparing fee, state, and federal title opinions, including lease acquisition, drilling, division order,

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and financing opinions, all of which are based on an examination of the source materials. To illustrate the steps an examining attorney takes to prepare a particular type of title opinion requested by a client, we will go through the steps of preparing: (i) the attorney notes on pertinent matters contained in the examined source materials ("worksheets"); (ii) the chart based on the worksheets, which reflects all pertinent ownership transfers affecting the lands under examination ("chaining" or "ownership chart"); and (iii) an outline based on the worksheets and ownership chart from which the attorney will prepare the opinion ("review sheet"). The materials include a copy of appropriate abstracts and other materials submitted for examination. The powerpoint includes the step-by-step analysis of the documents included in the abstracts to show you how we approach the examination of title and turn the mass of submitted materials into a format that succinctly provides the client with the information it seeks, identification of title defects, and the legal opinions that allow the client to move forward with its proposed drilling, payment of proceeds, financing, or acquisition, as well as the steps the client must take to address any title defects. Subsequent papers will discuss the various types of opinions, the opinion lay out, the substance of the opinion, and other issues. This paper will focus heavily upon the mechanical steps of taking adequate notes, catching defects, and preparing a check list to ensure that the opinion addresses all title defects.

Although this paper focuses on title examination in the State of New Mexico, we believe the procedures and the mechanics that are undertaken are applicable in all other jurisdictions. The goal is to develop a format that ensures: (i) accurate information finds its way into the title opinion; and (ii) defects in title get specifically addressed. The attorney rendering a title opinion must master the mechanics of producing the opinion, be well-rounded and versed in all areas of civil (and sometimes criminal) law that may affect land title, and be able to make sound, reasoned decisions based upon the facts presented by the source materials. Often an attorney examining title must also accurately draft the many contracts and curative instruments necessitated by the requirements made in the opinion to meet the needs of a client who desires to minimize its risk by insisting on marketable title.³

This paper will first discuss preparing worksheets from the examined materials. We will then focus on preparing the chain of title. Following the mechanical issues, we will focus on identifying defects in the documents and in the chain of title which will lead to the preparation of a review sheet. To assist us in identifying defects, we will finally focus on document interpretation issues, including application of the Duhig Rule as it exists in most oil and gas producing states.

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II. PRELIMINARY CONSIDERATIONS

It was important to start this program with an understanding of where the title records are located and how to access the pertinent records for a title examination. This basic understanding is necessary as you will, from time to time, be required to do a stand-up title examination directly from the pertinent county, state and/or federal records. Stand-up title examination presents additional risks to the title examiner and is usually done when facing a very tight deadline which, in and of itself, provides an added measure of stress for the title examiner. The added risks include having to prepare a take-off of the instruments affecting a particular tract of land and/or oil and gas lease, and then examining the instruments reflected on the take-off and making accurate notes of the instruments without the luxury of easily referring to the instruments at a later time. After examining the instruments reflected in a tract book, you must again search the county records for miscellaneous instruments that may not be tied to a particular tract of land, but nonetheless affect the interests of the parties in the chain of title. Such issues would include blanket conveyances, liens, divorces, probates, and other matters that would affect any and all property owned by a party in the chain of title within a particular jurisdiction. Another risk is the examiner's general unfamiliarity with peculiar or unique indices, records, and other matters which would not be known by a title examiner who has no experience in the particular county or with respect to the particular records being examined. Therefore, when conducting a stand-up title examination, an examiner must be very inquisitive to ensure that he or she is examining all pertinent records and has looked in all of the various places that may reveal instruments affecting a particular tract of land and/or the parties owning interests therein.

In most cases, the title examiner will have the luxury of examining an abstract certified by an abstractor in the county where the lands are located. An abstract compiled and certified by a local abstractor generally provides the title examiner the greatest confidence that the abstract contains all of the instruments affecting a particular tract of land and affecting the parties in a chain of title. In some instances, the certified abstract may be from an abstract company that lacks familiarity with the particular county records where the land is located. In these instances, the title examiner must have a keen eye to determine if there is a sense that something is omitted from the abstract and work with abstract company in ferreting out such issues. More recently, it has become common for companies to hire independent landmen to photocopy pertinent records to compile and deliver a "landman's abstract" to a title examiner for examination. In most instances, the landman is not bonded and the abstract may or may not be complete, generally depending on the experience of the landman preparing the abstract. Some landman abstracts are of excellent quality, contain all of the pertinent instruments, and reflect a thorough examination of the tract books and miscellaneous indices. However, the title examiner must be vigilant because a landman unfamiliar with abstracting is more prone to omit pertinent instruments, particularly instruments that lack a legal description, and appear only in a miscellaneous indices search.

The mechanics discussed in this paper stress double checking the attorney's work at every possible point in the examination process to ensure the accuracy of the title opinion and to

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minimize the risk of embarrassment and potential malpractice. There are certainly ways to shortcut or omit one or more of the steps in the process, but to do so increases the risk and, in our experience, will lead to additional time spent down the road to address any errors that are later discovered.

III. EXAMINING RECORDS AND/OR SUBMITTED MATERIAL

A. Preparation of Worksheets. When examining the source material, and for our purposes we will be reviewing examples from a certified abstract, the attorney will make notes on the instruments affecting the lands being examined. For over 70 years our firm has used special printed paper for preparing worksheets. We also use a computer template based on this form. The form allows us to place information in specific places on the worksheet. The placement...