1. The Fractionalization Dilemma
Roberto L. Seda

2. What is happiness?

3. What is happiness for a title attorney?1

4. What is happiness for a title attorney?

5. Why is “1” important to us?
Easier on the eyes than
It signifies that our title opinion is complete.
It probably means that as attorneys that we will get a paycheck.
It represents the whole.
Most importantly, it means that all the complexities and nuances of record title have been resolved and addressed within the title opinion.
You have a happy client….hopefully!

6. Where is the state of title currently at?
BEFORE AFTER

7. Where is the state of title currently at?
Title problems are created by:
Conveyances
Deaths
Divorce
Foreclosure
Tax sales
Statutes
The law changes over time.
This list is not all inclusive!

8. Where is the state of title currently at?
Title problems grow exponentially, not linearly.
Fee
Surface
Minerals
Leasehold
Working interests
Overriding royalty interests
Other
Term
Non-participating mineral/royalty interest
Life estates

9. Where is the state of title currently at?
Acreage ownership = At least six decimals
Large, costly opinions
Long lead times to get completed title opinions
No relief in sight
Title is only going to get worse
In some states, we are not even 100 years into statehood.

10. How big of an effect are those small interests?
Administrative costs for oil and gas companies
Tracking all the small interests
Payments
Locating and leasing minerals owners can be an overwhelming tasks.
Townsite opinions become more difficult because you are dealing with many small tracts and then potentially multiplying that by the number of severed mineral owners

11. TITLE DEFECTS Increase with time.
Unfortunately, more are created than are cured.
Each title defect may require a title requirement
Title requirements can be expensive
Probates
Quiet titles
Some title requirements may be impossible to cure resulting in a quiet title.

12. What are options to counter the fractionalization dilemma?
Some fractionalization issues will resolve themselves with time
Life estate / remainderman interests merge with expiration of life estate
Term interests expire
Fee
Non-participating
Leasehold interests expire

13. What are options to counter the fractionalization dilemma?
Marketable Record Title Act
Michigan
North Dakota
Oklahoma
Also has Simplification of Land Titles Act
Texas
Mineral Marketable Record Title Act

14. What are options to counter the fractionalization dilemma?
Ways to clear title in small interests in a cost effective manner
Oklahoma
Affidavit of Death and Heirship Statute (16 O.S. § 67)
Summary Administration Probate
Texas
Rocket probate procedure
However, this still requires initiating a probate

15. What are options to counter the fractionalization dilemma?
Dormant Mineral Act
States include:
Michigan (MCL et seq)
North Dakota (N.D.C.C. § )
Ohio (Ohio Rev. Code § )
Severed mineral interest merge with the surface interest if the elements required by their state are satisfied.
Minimum of 20 years in the states named above before interest is subject to merging with surface interest.

16. What are options to counter the fractionalization dilemma?
Nonuse Statutes
Kansas (K.S.A et seq)
Mineral interest can be lost if unused for a period of 20 years
Louisiana (La. R.S. 31:27(1))
Mineral servitude extinguished if there is a period of 10 years of nonuse.

17. What are options to counter the fractionalization dilemma?
Other Options
Family Trusts
Non-profit entities
Limited Liability Companies
Taxation of severed mineral interests?
Would require new legislation
Unpaid taxes after a certain number of years would result in a tax sale after a few years
It may be that sophisticated mineral owners benefit the most.

18. What are options to counter the fractionalization dilemma?
Other Options
Setting/increasing minimum amount for aggregate payments to reduce administrative costs for oil and gas companies
Escheat: Property escheats to the state if:
Under 84 O.S. § 271(1), any real property interest (including minerals) shall escheat to the state if a person owning said interest dies without any devise and having no heirs, or
Under 84 O.S. § 271(2), certain property interests escheat to the state after a person owning any real or personal property is “absent” for a term of 7 years and is not known to exist.
Except mineral interests subject to sale under 84 O.S. § 271.1

19. What are options to counter the fractionalization dilemma?
Other Options
Abandoned Mineral Interest – Sale (84 O.S. § 271.1)
It states that if “the proceeds or other intangible interest from any mineral interest are abandoned for a period of fifteen (15) years, as provided for in the Uniform Unclaimed Property Act, then the mineral interest which generates the intangible property interest shall not be subject to escheat, but shall be subject to judicial sale by the state as provided for in Sections 273 through 277 of this title.”
Attorney General or district attorney files a petition to asking to take possession of the mineral interest on behalf of the state.
If petition is granted, mineral interest is then sold by the sheriff.

20. Questions?
Roberto L. Seda
sedalawfirm.com