Curing ailing mineral title problems: The quiet title option
Whether in the Bakken, Marcellus Shale or Harding County, issues relating to problems with mineral title ownership occur regularly in the oil patch. If a lawsuit is the equivalent of using a hatchet, then a quiet title action, a special type of lawsuit, may be considered microsurgery. A quiet title action can and often should be used to clear up mineral interests in dispute. A quiet title lawsuit is also called a suit to remove a cloud on the title. The ‘cloud’ can be any type of disputed situation and does not need to be a claim for full ownership of the property.
Oil and gas production is driven largely by the ability to access resources. Mineral interests often have unclear or uncertain titles. By way of example, a severance of mineral interests from the surface estate in many instances occurred years ago with current mineral interest owners now unknown.
These so-called severance issues hinder the development and extraction of resources, adding costs to the process. Without a clear mineral title, an owner may be prevented from leasing mineral rights, receiving royalties, extracting the minerals, selling their interests, or obtaining compensation from production.
When a quiet title action can be used
The law provides several ways to remedy situations in which a title is unclear. One straight-forward way to address “ailing” mineral titles is to bring a quiet title action through, allowing a court to determine ownership or otherwise declare the rights to the property. A quiet title action always involves a legal question regarding “interest in property.” The process may be used to clear up titles and address a variety of situations that occur in the oil patch. In April, the North Dakota Supreme Court ruled on a quiet title lawsuit to settle after-acquired title claims to mineral interests. Some examples of typical quiet title situations include:
- Disputes regarding an oil and gas lease
- Disputes regarding royalty ownership
- A situation where the property was oral gifted without any writing to support the claim
- A case where the boundary of the parcel is incorrect due to a surveying error
- When the ownership claim to both the mineral and surface estate is based on a foreclosure
- Where an oil and gas lessee asserts a right stay in the lease after the expiration of the lease term and cessation of production
- Where there has been a fraudulent conveyance of the property
A quiet title action serves to determine what actual interest any party holds. The related process of claiming a lapsed or abandoned mineral interest, or clearing a title, is often a three-part process that begins with a title search. It is followed by giving notice in both the newspaper and by certified mail to the last-known mineral owner of record. Finally, if no legal challenge is impending, it ends with a quiet title action in court.
Advantages of a quiet title action
A quiet title action has advantages over alternative strategies. It allows the requesting party to address and deal with unknown and unclear future claimants to the mineral rights. A plaintiff may bring an action where claimants may be unknown due to the passing of time. Contrary to popular belief, in many quiet title actions, if there are no significant defenses or challenges to the lawsuit the costs of the litigation can be nominal.
Because this type of action is frequently commenced against unknown claimants or claimants who cannot be located as a means to clear a title, it is important that good research and due diligence be completed to insure that all potential claimants are notified, or the final judgment may be subject to “cancellation.”
In my experience, the most common error in a quiet title action is the failure to give notice. Simple as that. The common sense rule for all quiet title actions: provide adequate notice to any party that has a potential interest in the property. You don’t want to pay for a road trip to nowhere. If a requesting party has knowledge of any possible party who has, or claims to have, any interest in the property, those parties must be included in a quiet title lawsuit. A full investigation of property records is only the first step in a successful quiet title action.
About the Author: David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law in South and North Dakota.
