CURING TITLE DEFECTS
| Jurisdiction | United States |
(Feb 1992)
CURING TITLE DEFECTS
Richard H. Bate
Ray Quinney & Nebeker
Attorney at Law
Salt Lake City, Utah
Denver, Colorado
Table of Contents
1. Introduction
2. Drafting Title Opinion Curative Requirements
2.1 Transactional Opinions vs. Title Opinions
2.1.1 Typical Closing Opinions
2.1.2 Title Opinions
2.2 Guidelines for Drafting Curative Requirements
2.2.1 Purpose of Opinion
2.2.2 Needs of Client
2.2.3 Communication with Landman
2.2.4 Assumptions
2.2.5 Supporting Facts
2.2.6 Anticipating Future Supplementation
2.2.7 Risk Analysis
2.2.8 Alternative Requirements
2.2.9 Style and Format
3. Use of Curative Statutes
3.1 Definitions and Distinctions
3.1.1 Remedial Statutes
3.1.2 Statutes of Limitation
3.1.3 Marketable Title Acts
3.1.4 Dormant Mineral Statutes
3.1.5 Statutes Defining Scope of Conveyances or Reservations
3.1.6 Statutes Limiting the Effect of Mineral Leases
3.1.7 Federal Land Policy and Management Act
3.1.8 Statutes or Rules Authorizing Quiet Title Proceedings
3.2 Constitutional Issues
3.2.1 Retrospectivity or Retroactivity
3.2.2 Impairment of Obligation of Contracts
3.2.3 Legislative Encroachment on Judicial Power
3.2.4 Taking without Just Compensation
3.2.5 Due Process
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3.3 Effect of Statutes
3.3.1 Extinguishing Claims
3.3.2 Creating Presumptions
3.3.3 Negating Constructive Notice
3.3.4 Defining Marketable Title
3.4 Remedial Statutes
3.4.1 Validating Defective Instruments
3.4.2 Validating Defective Proceedings
3.4.3 Evidentiary Effect of Recitals in Instruments
3.5 Statutes of Limitation
3.5.1 Extinguishing Liens of Ancient Mortgages and Deeds of Trust
3.5.2 Extinguishing Other Liens
3.5.3 Real Estate Contracts and Options
3.5.4 Adverse Possession and Vacant Lands
3.6 Marketable Title Acts
3.6.1 The Model Act
3.6.2 States Adopting the Model Act
3.6.3 Effects of Act
3.6.4 Scope of Title Examination under Act
3.7 Dormant Mineral Statutes
3.8 Statutes Defining Scope of Conveyance or Reservation
3.9 Statutes Limiting the Effect of Mineral Leases
3.10 Federal Land Policy and Management Act
3.11 Statutes and Rules Authorizing Quiet Title Proceedings
3.11.1 Parties
3.11.2 Service of Process
3.11.3 Perfecting Record Title
3.11.4 Extinguishing Valid Claim
4. Use of Title Standards
4.1 Origin of Title Standards
4.2 Purposes and Benefits of Title Standards
4.2.1 Standard of Care
4.2.2 Statement of Generally Accepted Presumptions
4.2.3 Summary of Established Law
4.3 Risks in Reliance on Title Standards
4.3.1 Outdated Title Standards
4.3.2 Presumptions May Be Rebutted by Actual Facts
4.3.3 Not Curative in Nature
4.3.4 Not Binding on Courts
5. Conclusion
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1. Introduction
This segment of the Special Institute on Mineral Title Examination III consists of two papers considering the drafting of title opinion curative requirements and the curing of title defects. This paper, Paper 10A, is written from the perspective of the lawyer who examines the mineral title and drafts the curative requirements. The second paper, Paper 10B, is written from the perspective of the landman who must carry out the curative requirements.
This paper will consider factors which should be taken into account when drafting curative requirements. It will also summarily examine the use of curative statutes and title standards in curing mineral title defects.
2. Drafting Title Opinion Curative Requirements
Before discussing specific guidelines for drafting mineral curative requirements, it is necessary to understand the purpose of the title opinion which contains the requirements. To gain perspective on that purpose, it is helpful to contrast mineral title opinions and their title curative requirements with legal opinions rendered in connection with the closing of commercial transactions in general and their related "due diligence."
2.1 Transactional Opinions vs. Title Opinions
2.1.1 Typical Closing Opinions
A typical commercial legal opinion is rendered at the time of closing of a transaction, such as a corporate merger, loan, property acquisition or securities issue. However, the form of the opinion is usually negotiated among the parties and their counsel well in advance of the closing in order to ensure the ultimate validity and enforceability of the contracts yet to be finalized and to allocate factual and legal risks among the parties.
The draft opinion provides a checklist of the terms, conditions and representations which must be drafted into the operative documents, as well as an outline for "due diligence" to ensure
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that factual conditions have been satisfied and potential problems have been resolved, all before the opinion is delivered at the closing.
The closing opinion is delivered as the end result of the transactional due diligence process, and only after all pertinent facts have been investigated and confirmed and all supporting corporate and governmental certificates have been obtained. There is no need for curative requirements or flexibility — the diligence has already been completed and the purpose of the opinion is satisfied upon delivery. Therefore, it is appropriate for a closing opinion to be narrowly drafted and to include severe restrictions on who may rely thereon as well as strict limitations on further dissemination and use.
2.1.2 Title Opinions
Mineral title opinions are generally prepared for the purposes of identifying owners of interests in a mineral property at various stages of the property's acquisition, exploration, development and financing, identifying defects in title and proposing curative actions to remedy title defects.1 Title opinions are based on facts of record as of the time of the title examination.
Unlike a typical closing opinion, which is rendered as the end result of factual inquiry and due diligence, the mineral title opinion is both the starting point and working tool for non-record factual investigation and curative action after delivery of the opinion. Where the purpose of the closing opinion ends with delivery, the real utility of the mineral title opinion begins with delivery. Where the closing opinion properly limits future reliance and use, the mineral title opinion is usually passed on to, relied upon and supplemented by future parties and their counsel.
In light of the significant differences between the purposes and uses of most transactional closing opinions and those of mineral title opinions, the considerations which shape the form and content of closing opinions are quite different from the considerations which should guide the mineral title examiner in meeting the needs of his or her client. When these distinctions become blurred, the results are inflexible, short-sighted opinions which tie the hands of the landman who must cure title defects in the near term and compound the effort required to supplement the opinion in the future.
2.2 Guidelines for Drafting Curative Requirements
2.2.1 Purpose of Opinion
The first rule in preparing title opinions in general and in drafting curative requirements in particular is to remember the purpose of the opinion. For example, in an oil and gas drilling title opinion, the client needs a clear summary of all working interests (with parenthetical
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explanations of revenue interests), while a division order opinion should clearly summarize all revenue interests (with parenthetical explanations of working interests). A financing opinion should be focused on the interest of the borrower rather than on the property as a whole.
In addition to "calling title" as of a particular moment in time, the opinion should also be a flexible tool for use in curing title defects, and a reasonably complete reference to the subject property for later expansion and supplementation.
2.2.2 Needs of Client
The degree of detail and extent of explanatory text needed in a title opinion depend on the sophistication of the client. If the opinion is prepared for the legal department of a large company with full time lawyers and landmen who are familiar with the mineral prospect and experienced in performing curative work, elaborate explanations of legal theories may be a unnecessary. On the other hand, a small company without experienced in-house lawyers may need more complete explanatory background and guidance. In either event, however, the client needs sufficient information to make informed judgments as additional facts are discovered in the course of curative work.
2.2.3 Communication with Landman
Companies with more than a passing presence in the area of a particular prospect frequently rely on the same in-house or contract landmen both to obtain leases and to perform title curative work. Such landmen can provide invaluable insights into the non-record history of properties and owners as well as practical guidance in crafting curative strategies. The landman may well have previously dealt with identical or similar title problems on nearby properties. One or two simple telephone conversations regarding the history of a property or the practicality of possible curative actions can avoid much wasted effort and numerous unnecessary revisions of the opinion.
2.2.4 Assumptions
In the course of any title examination, the title examiner necessarily makes assumptions. Some are obvious, such as the assumption that the John Smith who signed a deed as grantor in the chain of title is the same John Smith who was named as grantee in the prior deed. Others, though less obvious, may still not necessarily rise to a level where a separate, mandatory requirement is justified, such as the assumption that John M. Smith who signed the later deed is the same person as John...
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