As oil and gas companies flock to eastern Ohio to take advantage of the Utica shale play, trying to figure out “who owns the mineral rights” continues to be a difficult and increasingly important question.
As noted in a recent post, Ohio title insurance companies are excepting from title insurance policies the ownership of the subsurface mineral rights, including interests in oil and gas, and the existence of any leases for the minerals on a given property. Apart from whether title insurance is required by a lender or requested by a party on a transaction, it is difficult to find a title company in Ohio that is willing, and qualified, to render a title opinion on the status of a property’s mineral interests.
Though title insurance companies are not providing mineral estate coverage, mineral rights title searches are still possible, but not easy. Here is the “CliffsNotes” summary:
In most cases, the status of mineral rights does not appear on the current property deed. Minerals are presumed to be included in the conveyance of the surface land, unless specifically excepted or reserved by deed. Mineral rights may be severed from the surface land; i.e., they may be sold or transferred separate and apart from the surface land. Even if a deed does purport to convey mineral rights, the deed may be inaccurate if there are historical transfers of the mineral rights that are unknown. The only way to be sure that a deed actually conveys mineral rights is to research the chain of title to confirm the mineral rights were not previously severed and are still a part of the fee simple estate.
In accordance with the Ohio Marketable Title Act (Ohio Revised Code §§ 5301.47 to 5301.56, inclusive, referred to as “OMTA”), title searchers go back at least 40 years to review matters affecting title to property. However, when it comes to mineral rights, a specialized section of the OMTA, such as the Ohio Dormant Minerals Act, can arguably modify this general 40-year rule for severed mineral interests.
In the case of mineral interests that may have been severed from the fee simple estate by a former owner — by reservation in a deed, or transfer to a third party or heir — title searchers will need to trace the mineral title as far back as possible, even to the original land grant if records allow. Thus, the review of these records is time-consuming and typically involves archaic, hand-written documents.
“Marketable Title” Under the Ohio Marketable Title Act
Generally, marketable title refers to a title to real property that a reasonably prudent buyer would accept. (See Black’s Law Dictionary.) Marketable title does not guarantee an absolute absence of title defects. According to the OMTA, “marketable record title” means a title of record which operates to extinguish interests and claims to a particular property existing prior to the effective date of the root of title (emphasis own). (See § 5301.47(A).) “Root of title” refers to the title transaction in the chain of title of a person, purporting to create the interest claimed by such person, upon which he relies as the basis for the marketability of his title, and which was the most recent to be recorded over the 40-year period. (See § 5301.47(E).) In accordance with § 5301.49(D), however, “record marketable title” is subject to any interest arising out of a “title transaction” which has been recorded subsequent to the effective date of the root of title from which the unbroken chain of title or record is started (emphasis own). A “title transaction” is any transaction affecting title to any interest in land — including title by will or descent, decree of any court, or mortgage. (See § 5301.47(F).) Thus, to discover whether any title transactions exist that may alter, modify or extinguish a person’s record marketable title in a particular property, title searchers must search probate and other official public records as well as records in the office of the recorder in the county in which all or part of the land is located.
Ohio Supreme Court and “Independent Chains of Title” — Affect on Severed Mineral Interests
As it relates to the analysis of the OMTA in relationship to the ownership of mineral rights, the Ohio Supreme Count held in the case of Heifner v. Bradford, 4 Ohio St.3d 49 (1983) that “marketable record title” as defined in Ohio Revised Code §§ 5301.47(A) and 5301.48, is subject to an interest arising out of a “title transaction” under § 5301.49(D), which may be a part of an independent chain of title.
Brief Summary of Facts:
- In 1916, Elvira Sprague and her husband conveyed their interest in property in Muskingum County by deed to Fred H. Waters but reserved, in this instrument, the oil and gas rights in the land.
- Elvira Sprague died in Tuscarawas County in 1931 with a will that devised her reserved oil and gas rights to her two daughters, equally.
- In 1936, Waters conveyed the property by warranty deed to his four children with no mention of the prior oil and gas rights reservation.
- Daughters of Elvira Sprague both died intestate before 1957.
- In 1957, Elvira’s will and an affidavit transferring the oil and gas rights by inheritance were filed and recorded in Muskingum County.
- Elvira’s daughters’ mineral interests were then divided equally among the daughters’ seven children.
- In 1980, three of Waters’ children conveyed their interest in the property to their brother William H. Waters and his wife, Shirley S. Waters.
Issue in the Case: Is an unbroken chain of title of record of 40 years or more a “marketable record title” even though there is a competing interest arising from an independent chain of title recorded during the same 40-year period and subsequent to the root of title?
Court’s Reasoning and Conclusion: The 1916 deed from Elvira Sprague and her husband to Fred H. Waters is the root of title of Elvira Sprague’s daughters’ heirs in the mineral rights. The 1936 conveyance (with no mention of the previous reservation of the mineral rights) to the Waters’ children operates as the “root of title” for the Waters’ children’s interest. The court reasoned that unless the Waters’ title to the property is subject to § 5301.49(D), they hold a marketable record title to the oil and gas rights, as well as title to the surface land, by virtue of having an “unbroken” chain of record title for more than 40 years, which extinguishes prior claims and interest including that of Elvira Sprague’s daughters’ heirs.
It was necessary for the court to determine whether the 1957 affidavit of transfer was a “title transaction” within the meaning of § 5301.49(D). The court reviewed the “Model Marketable Title Act” (the model for the OMTA), the “Model Title Standards,” as well as the drafter’s comments on both, and became convinced by the comments — relative to the standard pronounced under § 2(d) of the Model Act that an instrument of conveyance has the same effect in preserving any interest conveyed as the filing of the notice required by the Act — which provides that the standard “is operative both where there are claims under a single chain of title and where there are two or more independent chains of title.”
The court determined that the 1957 affidavit of transfer relative to the mineral rights was recorded subsequent to the Waters’ surface root of title and was also recorded during the 40-year period. The court also found that the recorded affidavit of transfer is a transfer by will or descent and, thus, is a “title transaction” for purposes of the OMTA. Therefore, the court held that the 1957 conveyance recorded in the land records of Muskingum County was a “title transaction” within the meaning of § 5301.49(D). The severed mineral interest was not extinguished by operation of the OMTA, and Elvira Sprague’s descendants retained rights to it.
Searching Mineral Rights Title Records
If a severance of the minerals is discovered, the title searcher not only needs to search for independent chains of title relative to the a particular property, as highlighted by the case above, but also needs to trace that document forward in time to track the relevant interest and the present owner of the mineral rights. Subsequent owners of a reserved or transferred mineral interest may truly be “needles in the haystack.”
As mentioned earlier, the severed interest will have to be analyzed under the general rule of the OMTA, as well as a specialized section of the OMTA, known as the Ohio Dormant Minerals Act (Ohio Revised Code § 5301.56) — an Ohio law that operates to extinguish and deem “abandoned” old, unused (for at least the last 20 years) mineral interests, except interests in coal, if such interests are not “declared,” by the holder, by recording a proper notice in the land records of the county recorder’s office. Read more about the Ohio Dormant Minerals Act.
To add to the challenges, the counties where the Utica shale play is most active are often those same counties where land records and other public records are not yet available online. Some of these county recorder’s offices are having mineral title searchers take a number and wait in line until space is available to search the records and their number is called. Mineral title searchers are also sometimes limited to very brief periods of time (for example, one-half hour) to access the records or public computer terminals before they have to draw a new number. Under these circumstances, mineral title searches take more of the searcher’s time than is customary for standard property title searches. Where standard property title searches can take a few hours with a follow-up title report to be issued within a few weeks, mineral rights searches are taking a few weeks or longer, and the follow-up title report may take a few months to complete.
Often, mineral rights title reports will either include qualifications or disclose title issues that may be difficult to resolve. This is because (i) the mineral rights title records, as already mentioned, are archaic and/or difficult to decipher in some counties, and (ii) if the deeds or assignments of leases are defective, the entities or individuals who could sign curative documents are frequently out of business or difficult to locate.
Given this backdrop, landowners, prospective buyers or, in some instances, oil and gas companies may be left to their own devices to conduct “mineral title searches,” especially if time is of the essence or cost is an issue. To avoid delays, some oil and gas companies have literally paid to scan all of the county deed records into a private database for their use and/or the county’s use. Further, more ordinary citizens are becoming acquainted with their county courthouses or recorder’s offices than ever before.
We are closely monitoring the situation on behalf of our clients and are providing updates to them as additional facts are known.