Blogging Tulsa Real Estate: October 2009

The unintended consequences of the new Oklahoma real estate contract forms are numerous and complex. On Friday the Oklahoma Real Estate Commission (OREC) unveiled the new real estate contract forms. The OREC has recommended that licensed real estate brokers and their associates begin using the new forms on November 1, 2009. It's not too late to comment and request that changes be made. Our future economic well being and our national security could potentially be at risk.

The new forms will put into limbo all mineral rights that are not now active or leased, because unproduced oil & gas rights are not tracked nor taxed. Mineral rights will be put in limbo where no one will know what is going on until the State of Oklahoma comes along and takes them as unclaimed property, thereby depriving the landowners of the State of Oklahoma of a significant portion of their wealth.

The county tax assessors only track and tax the surface owners. Oil & gas producers track producing mineral holders in order to distribute royalty checks. Because they are never taxed and do not receive royalty checks, descendants of unproduced mineral holders are unaware of their ownership of severed oil & gas rights. Moreover, privacy laws make it difficult for landmen to find heirs. Detailed census data is closed for seventy years -- that's three generations of tough genealogical work for anyone trying to find holders of mineral rights.

The lawyers, the landmen, the abstract companies, and the title insurance companies will be the big winners of the new contract forms. The consumers, landowners, undeclared mineral holders, and real estate brokers who do not broker oil & gas rights will be the biggest losers.

Potentially the economic engine of the State of Oklahoma will be crippled to the extent that the state may eventually have to quiet title undeclared mineral holders in order to prevent foreign investors from quietly investing in these precious personal property rights that will be regularly severed through the use of the new contract forms.

Only the Osage Nation, who already owns most of the mineral rights in Osage County (all but about 800 acres or so) will be able to conduct business unimpeded by legal problems.

Those of us who sell rural land have been aware of the problems caused by the previous Vacant Land contract forms and have been hoping to get them changed so that the personal property rights would no longer be severed by the vacant land contract forms for "surface rights only." Instead we were shocked to discover that all the new contract forms are written for the purchase of surface rights only. Knowlegable brokers and associates will be crossing out certain words in the new contracts. However, that will not prevent damage being done by ignorant real estate sales associates who will not be realizing that they are not representing the best interests of their buyers and their descendants.

Does this mean that the OREC wants all real estate brokers and associates using these new forms to be representing their clients as transaction brokers? This must be the case, because by law a single party broker must advocate for and work in the best interest of their clients. Any buyer's broker using the new forms without alteration will not be representing the best interest of their buyers and therefore will be leaving themselves open for legal action if they act as a single party broker.

Yeah, yeah, yeah, how can that be? Just wait until the D6 dozers and the drilling rigs start pulling up on your buyer's land! They'll cry when they realize that the mineral estate is dominant over the surface estate. Then they'll call their lawyer who will then call you. You will be responsible for not having explained to your buyer the unintended consequences of their having purchased only the surface rights.

At least with the old forms our buyers were able to purchase all of the rights owned by the seller -- however many and kind of rights those may have been.

Moreover, we can all kiss goodbye to the concept of quiet enjoyment.

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Mineral Rights and States' Rights Issues -- The Gradual Erosion of Property Rights and the Seizure of Power From a State By the Federal Government

Who has jurisdiction when there is a conflict between the surface owners and the owners of the mineral estate?  Can the Federal Government constitutionally use it's police powers to restrict access to private property in the form of mineral rights or is this a right of the states and the people under the constitutional principle of federalism?

In a recent article by Robert J. Keir, Appalachian Basin Land Manager, entitled, "The Battle for the ANF is Really a States Rights Issue," this very issue is explored. With the permission of the American Association of Professional Landmen (AAPL), I have reprinted the entire article which recently appeared on pages 13-14 in the September 2009 issue of Landman 2 (Vol. 7, no. 5).  What follows are the words of Mr. Keir, with emphases added by me:

The battle between oil and gas owners and the federal government in the form of the U.S. Forest Service regarding drilling rights in the Allegheny National Forest (ANF) has raised a great deal of Constitutional fuss. The argument is focused mostly on Fifth Amendment concerns: "nor shall private property be taken for public use, without just compensation." However, the 10th Amendment issues are more threatening to our liberty and potentially more sinister as the Obama Administration claws power back from the states. "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

The 10th Amendment reaffirms the principle of federalism by providing that powers not granted to the national government nor prohibited to the states are reserved to the states or the people.

In Pennsylvania [as in Oklahoma and in many other states, I must add], the mineral estate is the dominant estate, the surface estate is the subservient estate and the mineral owner has an implied right to use so much of the surface as is reasonably necessary in order to develop these minerals. The surface owner is forbidden to interfere with any reasonable use of the surface by the mineral owner. The term "reasonable" is a bit nebulous, but the Commonwealth of Pennsylvania in the form of statutes, regulations and more than 100 years of case law has established a pretty firm definition of reasonable use.

In fact, the Pennsylvania Supreme Court, in Belden and Blake v. Pennsylvania Department of Conservation and Natural Resources (2009), forcefully reaffirmed the rights of the mineral owner and that the surface owner -- ironically in this case the commonwealth of Pennsylvania -- cannot impose preconditions or control reasonable access to state lands for the purpose of oil and gas development. In a nutshell, the court said that even Pennsylvania was simply just another landowner without a mineral interest underlying the surface and that it -- like any other landowner -- could not impose unreasonable surface access restrictions to the owners of the mineral estate.

The ANF property covers more than a half-million acres spread over four counties. However, in 1923 when the Forest Service started to acquire land parcels for the forest, a decision was made, for economic reasons, not to purchase the sub-surface rights of the properties then being assembled. Therefore, the Forest Service only owns about 7 percent of the oil, gas and minerals under the forest. Private parties own the remaining 93 percent.

The recent settlement reached between the Forest Service, the ADF, the Sierra Club and the Forest Service Employess for Environmental Ethics requires drilling companies to conduct an environmental review in the form of a National Environmental Policy Act (NEPA) analysis, which addresses such issues as road construction near streams, reforestation, landscaping after a well is completed and a biological and heritage resource review. NEPA would also grant third-party input on drilling projects within the ANF.

All of these issues are already regulated by the commonwealth of Pennsylvania in the Oil and Gas Act. As the May 2009 issue of the IOGA newsletter neatly describes, Section 102 of the Act provides:

The purposes of this act are to

(1) Permit the optimal development of the oil and gas resources of Pennsylvania consistent with the protection of the health, safety, environment and property of the citizens of the commonwealth.

(2) Protect the safety of personnel and facilities employed in the exploration, development, storage and production of natural gas or oil or the mining of coal.

(3) Protect the safety and property rights of persons residing in areas where such exploration, development, storage or production occurs.

There is nothing in the NEPA analysis that Pennsylvania does not already cover or forbid.  These powers are reserved for the commonwealth because they were not delegated to Uncle Sam by the Constitution.

The ANF is just another large landowner and has no extra special rights compared to other landowners in Pennsylvania.  Any attempt by the Forest Service to impose surface use restrictions on oil and gas development in the ANF violates Pennsylvania law and the Fifth Amendment.

On the surface, this conflict is about the restriction of access to private property by a government agency.  But ultimately, it is about the seizure of power from a state by the federal government, which makes it a 10th Amendment issue as well.

We should be concerned about this gradual erosion of property rights as the ANF intrudes on individual liberties.  But all -- including the most ardent environmentalists -- should be especially alarmed at Uncle Sam's attempt to snatch power away from the states, because if this is allowed to continue, our federalist system as designed by the framers is in severe jeopardy.

This is not the change people voted for, and it is not for the good.

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http://dsolano.homesandland.com