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Division Order Case Study: Correction Deeds

Correction deeds can be tricky, and can be processed incorrectly if the analyst doesn’t know what to look for.

An experienced division order analyst knows the routine procedure for processing division order maintenance documents. The analyst receives a deed in their inbox and they quickly reviews the basic elements of the deed to determine if it meets the company’s basic requirements before continuing to process it.

First, the analyst checks the recording information to make certain it is recorded in the same county or parish as the lands described in the granting clause. It is surprising how often an analyst is sent a deed that is recorded in the wrong county.

Next, the analyst will query the database to find the grantor’s owner number. If more than one grantor is contained in the deed, all of them must be queried.

Then, the analyst pulls a computer report listing all wells in which the grantor(s) owns an interest, because their owner number is listed in those wells. If a grantor is not listed in the database, the analyst is alerted that either (1) there is another title document not yet processed by the company that gave this grantor mineral rights in the lands described in the deed, or (2) the company no longer owns the wells that include those lands, or (3) that the correction deed was submitted to the wrong company by mistake.

If the grantor is in the database, listed in pay status in active DOIs for producing properties, the analyst verifies that the legal description in the deed falls within the lands included in those wells.

Further research is done to verify the grantor’s right to make the transfer described in the deed. For example, if the grantor is conveying in his/her individual capacity when the owner record shows the grantor owns only as a trustee and not individual owner in that well, it appears the grantor does not have the right to make the conveyance. After this basic review is completed, and all basic requirements are met, usually the analyst can begin the in-depth analyst of the deed before making any changes to the database.

At this point, the analyst will follow company policy to proceed, such as whether or not to place the grantor’s interest in suspense pending the transfer in the database system, and other policies. But what if the deed is a correction deed? Does the same process of initial review apply for a correction deed that applies to a warranty deed? No. Now the horse has changed colors.

The preliminary review and database searches must still be done to determine that the correction deed can even be worked, but now the analyst also will be searching for database information on the grantee(s), not just the grantor(s). And, the analyst must find the original deed in the company’s records, the deed that this one is correcting. The analysis must include both deeds.

Suppose an analyst receives a document titled, “Correction Mineral, Royalty and Overriding Royalty Conveyance.” First the analyst should remember that the title of the document has no effect as to the true purpose of the document. The true purpose will be found only in the granting clause. All of the types of ownership listed in the title might not apply to the grantor(s) in the conveyance.

In this hypothetical document, the first paragraph states:

“This deed is executed to correct and be effective from the same date as the deed dated April 1, 2019 (effective date), from ABC Oil Company to those parties set forth in Exhibit B, in the proportions described therein, and recorded in Volume 1689, Page 83 of the Official Public Records of Reeves County, Texas, in which deed incompletely described the parties set for in in Exhibit B, in the portions described therein, collectively called ‘Grantee’. In all other respects the prior deed is confirmed.”

Hoist the red flag. Upon reading this first paragraph, the first step the analyst should take is to check the signature pages. In the actual deed being used in this case study, this correction deed was signed only by the single grantor. None of the grantees signed the correction deed, when each and every one of them should have signed it, or an agent signing in the capacity of agent for them (and the agency agreement should be filed with the correction deed in the county records in that instance). Why? Because the opening paragraph in the correction deed, as supported by the language in its granting clause, materially changes the ownership of the grantees listed in Exhibit B. That’s the key.

In this case, the original deed was found quickly in company records. When the original and correction deeds were compared, there were five additional grantees listed in the correction deed that were not in the original deed, and two grantees listed in the original deed were missing from Exhibit B in the correction deed. Additionally, only six of the original twenty-plus grantees received the same percentage of ownership in Exhibit B of the correction deed as they had received in the original deed.

The analyst should not process this correction deed, period. It has been analyzed to verify which well(s) in the company’s database it affects, but that would be the extent of the analysis at this point. The analyst will need to see a “Second Correction Mineral, Royalty and Overriding Royalty Conveyance” properly executed by Grantor and Grantees or their duly authorized agent(s) before any ownership transfers can be made in the division of interest(s).

Meanwhile, this failed attempt to correct the original conveyance has created a title defect. The analyst, to most effectively protect and limit the company’s liability in this transaction, should identify all of the original grantees and their successors-in-interest currently in the DOIs and place all of them in suspense for title requirement.

As a footnote, in identifying all of the grantees in the current DOIs, it was discovered that one of the two grantees missing from the correction deed Exhibit B had already transferred their now-invalid ownership interest to third parties. All of them were suspended until the title requirement could be cured.

Next week’s blog will be “Horizontal Payout Wells: Initial BPO DOI Basics.”

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