Depew Gillen Rathbun & McInteer

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Why Doesn’t My Title Insurance Commitment Cover Minerals and What Can I Do to Fix it?

May 23, 2017 By dgrm1

Many purchasers of real estate find themselves searching for answers to these very questions. Virtually all title commitments and insurance policies exclude coverage of oil, gas, and other minerals as a matter of ordinary course. Anyone who’s reviewed an industry-standard ALTA title commitment has noticed that minerals are a standard exception from coverage. But why?

The reason is the Kansas Marketable Record Title Act, found at Chapter 58, Article 34 of the Kansas Statutes, K.S.A. 58-3401, et seq. Originally passed and signed into law in 1973, the Act’s purpose is to “attack the curse of the hidden ancient interests in land,” according to the Uniform Law Commission that drafted the uniform law that Kansas’s Act is modeled from. In Kansas real property law, interests in land can continue to exist for long periods of time—even permanently. Some property interests are disclosed in public land records, but some are not. Before the Marketable Record Title Act, this fact of life posed quite a quandary for buyers of land—how far back should a title search go to identify any possible interest that may exist in the land that might affect marketable title?

Under the Act, ancient interests in land that nobody presently asserts are extinguished so as not to create a cloud on title to the land. The word “ancient” may be a bit misleading; the Act really extinguishes interests that are older than 25 years from the date the purchaser takes title. So when you hire a title company to write a title commitment on a parcel of land you want to buy, the title company searches title records going back only 25 years, rather than all the way back to the beginning of the records. This saves the title company—and ultimately the buyer—a bundle of time and money.

Nothing in life is free, not even the conveniences provided by the Marketable Record Title Act. The Act doesn’t apply to all types of ancient property interests. One type of property interest than can’t be extinguished by the Act are severed mineral interests. No matter how old a severed mineral interest is, or how long ago anybody presently asserted ownership of it, a present-day buyer of the land will take subject to the interest. That’s why title companies don’t insure title to minerals—because to do so would require them to search title going all the way back to the grant from the United States federal government.

Most buyers of land have no idea whether they are truly buying all of the minerals in, on, or under the land because their title policy won’t cover them. It’s not uncommon to encounter landowners who are dismayed to later learn their interest is subject to a third-party mineral owner. There is a solution, however. Title companies will usually remove the standard exception from coverage for minerals if the buyer provides a title opinion from a licensed Kansas real estate attorney covering the mineral estate in the land. Obtaining a mineral title opinion prior to closing on the purchase of a piece of real estate is the only way to truly ensure that you are buying all of the mineral interests in the property.

Getting a lawyer’s title opinion on a piece of property has other benefits, too. For instance, it can cover other types of property interests that aren’t covered by the Marketable Record Title Act, such as easements (or right-of-way) as well as remainder and reversionary interests. The only way to know about these kinds of interests is to look for them in the public land records, which typically stretch back to the late 1800’s in Kansas. By examining only the last 25 years of records, as title companies do, it’s possible to miss ancient interests that the Act won’t take care of.

Buyers of land in Kansas should consider hiring a licensed and qualified Kansas real estate lawyer to examine title to the land as a supplement to the title insurance commitment.

Joseph A. Schremmer
joe@depewgillen.com

May 2017
Depew Gillen Rathbun & McInteer, LC

This article is based on hypothetical facts and is issued for general informational purposes only. It is not intended to be construed or used as legal advice.

Filed Under: News Tagged With: mineral estate, mineral rights, real estate lawyer, title insurance, title insurance commitment, title opinion

KANSAS MINERAL LAPSE ACT: SWORD OR SHIELD?

February 24, 2017 By dgrm1

Title to real estate includes title to the surface of the land as well as to the oil, gas, and other minerals located under the surface, often called the “mineral estate.” Title to the minerals may be separated from or “severed from” title to the surface, so that, for example, John Smith may own 100% of the surface of Blackacre but transfer, or convey, to his brother, Bob Smith, 100% of the minerals under Blackacre. Both John and Bob may possess, convey, and pass to their heirs or devisees under a will all or a portion of their interest in Blackacre to other persons. The result, which is not uncommon in Kansas, may be that title to the mineral interest in Blackacre is owned by numerous individuals with each owning a relatively small fractional amount of the total minerals.

In most respects, John Smith’s title to the surface of Blackacre and Bob Smith’s title to the minerals in Blackacre are equivalent property rights in the eyes of the law. However, Kansas, like many other states, has adopted a dormant mineral act, also known as a mineral lapse act, which can have the effect of extinguishing Bob’s title to the mineral estate in Blackacre (and rejoin the mineral estate with the surface estate) if he fails to “use” his mineral interest.

The Kansas Mineral Lapse Act (K.S.A. §§ 55-1601 to 55-1607) is designed to identify the owners of severed mineral interests and incentivize them to “use” their mineral interests. Under the Act, if an owner of a severed mineral interest has not used the mineral interest for a continuous period of 20 years or more, the owner of the surface estate may, after giving notice to the severed mineral interest owner, extinguish the severed mineral interest and reunite the interest with the surface estate.

For severed mineral interest owners, and owners of surface estates subject to severed mineral interests, it is important to understand what constitutes “use” of the mineral interest under the Kansas Mineral Lapse Act. For severed mineral interest owners, this knowledge is key to avoiding lapse and loss of their mineral interest. For owners of a surface estate subject to severed mineral interests, knowledge of what constitutes use of a severed mineral interest may come in handy should the owner one day wish to extinguish the severed mineral interests and reunite them with his or her interest in the surface. Under the Kansas Mineral Lapse Act, a mineral interest is considered to be used when:

(1) Any minerals (including oil or gas) are produced from the property;

(2) Operations are being conducted on the property for the injection, withdrawal, storage, or disposal of water, gas, or other fluid substances;

(3) Rentals or royalties are being paid by the owner of the severed mineral interest to the owner of the severed surface estate for the purpose of delaying or enjoying the use of the mineral rights;

(4) The property is unitized or pooled for oil or gas production purposes with other property that is being used under this definition;

(5) In the case of coal or other solid minerals, there is production from a common vein or seam by the owners of the severed mineral interests, or

(6) Taxes are being paid on the severed mineral interest by the owner. In counties that separately tax severed minerals, “using” a severed mineral interest is as simple as paying annual property taxes on it.

To attempt to extinguish Bob Smith’s severed mineral estate and reunite it with his surface estate in Blackacre, in our example, John Smith would have to give notice to Bob that Bob’s mineral interest has lapsed for nonuse. This requires that John publish notice of the lapse in a newspaper of general circulation in the county where Blackacre is located and, if he knows Bob’s address, by mailing a copy of the notice by restricted mail to Bob within 10 days after publication of the notice in the county newspaper. For 60 days following publication of the notice in the county newspaper, Bob may file a statement of claim in the office of the Register of Deeds of the county where Blackacre is located preserving his mineral interest. If Bob files a statement of claim, his mineral interest will remain valid for at least another 20 years.

If, however, Bob fails to file a statement of claim during the 60-day period, then, under the Mineral Lapse Act, the severed mineral interest reverts to the owner of the surface estate—John in our example. John Smith would therefore take title to the severed mineral interests and would own both the surface and the mineral estates of Blackacre. John must then file a quiet title action in the district court of the county where Blackacre is located to quiet his title to the mineral interest against any claim of Bob in order to obtain marketable title to the mineral interest.

As you can see, the Kansas Mineral Lapse Act may be a trap for the unwary severed mineral interest owner in Kansas. The Act may also be a tool for a surface owner who wishes to reunite severed minerals with his or her surface estate. Sometimes this is the only way the land may be leased and developed for oil and gas purposes. Owners of real estate in Kansas should remain vigilant about the use or nonuse of severed mineral interests, and are strongly encouraged to contact qualified Kansas real estate legal counsel if and when issues of nonuse and mineral lapse arise.

Joseph A. Schremmer
joe@depewgillen.com

February 2017
Depew Gillen Rathbun & McInteer, LC

This article is based on hypothetical facts and is issued for general informational purposes only. It is not intended to be construed or used as legal advice.

Filed Under: Areas of Law, News Tagged With: coal, kansas mineral lapse act, mineral estate, minerals, oil and gas

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