How to avoid accidentally losing your minerals
This article is meant for educational purposes only for land and mineral owners in Oklahoma.
Landowners can’t accidentally lose their minerals, right? The answer might surprise you.
It’s a story you may have heard before. An Oklahoma landowner who owned both surface and minerals entered into a contract to sell the surface interest only. The contract specifically reserved the minerals to the seller. But at closing, the title company made a mistake and prepared a deed that failed to reserve the minerals. The seller signed the deed prepared by the title company and the sale was completed.
Fast-forward to several years later, and the seller realizes he isn’t receiving any offers to lease his minerals. He then learns that the buyers were able to sign a lease and get paid for his minerals. The seller does some investigating and learns that the deed he signed 5 years ago failed to reserve the oil, gas, and other minerals. The result of this tiny omission in the deed is that the seller essentially gifted away all of his Oklahoma mineral interests.
The seller decides to hire an attorney and recover his minerals. All parties—the seller, the buyers, even the title company—agree that the intent was to only sell the surface interest. Everyone agrees that the sales price was for the surface-interest only, and the contract clearly states as much. But the buyers nevertheless claim they don’t have to return the minerals because of something called the statute of limitations. The seller files a lawsuit to recover his minerals.
If you think the seller can recover his minerals, you might be surprised to find out that the buyers are probably right.
Similar situations were addressed by Oklahoma Supreme Court decisions in Calvert v. Swinford and Scott v. Peters. Similar to the scenario above, in Calvert two sisters entered into a contract to sell the surface-interest only for a tract of property. The sales contract clearly reserved the minerals to the two sisters. But the title company that closed the sale inadvertently prepared a deed that failed to reserve the minerals. Several years after the sale, the sisters learned that the buyers were receiving the payment on the sisters’ minerals. The sisters sued to correct the mistake in the deed (called “reformation of deed” in legal jargon). The sisters rightly claimed that it was obviously a scrivener’s error and not their intent to sell the minerals.
Here is where the statute of limitations comes into play. Even though everyone agreed that it was a mistake in the deed to transfer the minerals, the Oklahoma Supreme Court ruled in favor of the buyers. The Court held that once the deed was filed of public record, the sisters were put on notice of the error. The sisters argued that they had no knowledge of the error because the recorded deed was never sent to them. This argument was unpersuasive. The Court found that whether or not a party receives an actual copy of the recorded deed is irrelevant. Once the deed is filed of public record, the 5-year statute of limitations begins to run. This is the law in Oklahoma.
What does this mean for minerals owners who sell the overlying surface? It means that once the deed is filed with the county clerk, a 5-year statute of limitations begins to run. In general, this means that if there are any mistakes in the deed (often called scrivener’s errors) the seller has 5 years to correct the mistake by reforming the deed. Once the 5-year period runs, as a general rule the seller can no longer correct the mistakes in the deed. In Calvert, because the sisters filed their lawsuit more than 5 years after the deed was recorded, the sisters could not reform the deed. Their minerals were gone forever.
A similar situation arose in Scott v. Peters, where a seller executed a deed for the surface but forgot to reserve the minerals. Several years later when he discovered the mistake, he also sought to reform the deed. Like the sisters in Calvert, the seller was again unable to recover his minerals because more than 5 years had passed since the deed was filed of record with the county clerk.
While these situations are rare, they happen more than you might think. Most closing agents are quite good at what they do and routinely prepare deeds correctly based on the sales contracts. However, mistakes can still happen, and when they do it can cost a mineral owner dearly.
So, what can you do about your Oklahoma mineral interests?
- Ask an experienced real estate attorney to review the sale closing documents before you sign. Yes, you may have an extra cost for an attorney to review the deed. Yes, waiting for an attorney might slow things down. But consider the cost of failing to properly reserve your mineral interests. An experienced real estate attorney can catch these mistakes for you
- Ask for a recorded copy of the deed to be sent to you. You can also look for a copy of your recorded deed online. Remember, the statute of limitations begins running from the moment your deed is filed of record. Review the recorded copy of your deed to make sure there are no errors. If you catch them in time, most errors can be easily corrected.
- If you are receiving royalty payments on oil and gas production, pay attention to any change in your decimal interest or ownership amount. This can often times tip you off if something has changed in your title.
Remember, you are your own best advocate. Don’t be shy about asking questions about Oklahoma mineral interests, and don’t be afraid to seek legal advice.