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How not to transfer real estate and mineral interests

Posted on: November 1st, 2017
by David Ganje

It’s not your father’s Oldsmobile anymore: the world of real estate and mineral interests has changed. Yet, in the law, adherents to customs abound aplenty. Keeping, transferring and ‘devising’ real estate and mineral interests is not what you were taught. Following long-standing old usages can result in modern mistakes. Let me provide but a few examples.

1. Old practices die hard. The old practice of a current deed simply cutting and pasting some prior deed language is risky business. A prior deed holder’s assertion in a deed that he owned something does not make it so. In a case this year the SD Supreme Court ruled that current property owner’s reliance on their deed and on prior recorded deeds which asserted that an easement existed was wrong. The reason? Historically no party had ever properly created or declared the so-called easement. That’s a big problem for the current owners. Do not blindly rely upon the historical chain of title. Just because your father told you Oldsmobiles are the best cars made, you had better check. Oldsmobiles aren’t made anymore.

2. Christmas gifts and girlfriends. In South Dakota you cannot convey to a purchaser but still reserve back as a Christmas gift an interest in the property in favor of your current or future girlfriend. Yes, this has happened. Reservations in a deed in favor of a third party do not work. Nevertheless there are modern statutes authorizing the use of a deed outside of probate by which you can designate recipients to the property upon the expiration of your ‘credit card.’ When done correctly it is an alternative to
formal estate planning. This procedure is not used enough although it is less expensive than other estate planning tools.

3. Caveat Emptor is for fools. All buyers require special attention. I insist that my commercial and ag sellers comply, at a minimum, with similar a disclosure report following the disclosures required for residential sales. I also require that a buyer of property which includes mineral interests make a representation that he has himself researched the value of the interests. When selling real estate do not allow for a small item to become a deal breaker. Over-disclose. I know of a transaction where the seller did not disclose that an end-of-life event had occurred in the cistern of a property. This could have canceled the deal. On the obnoxiously humorous side, in a large transaction involving land and buildings, the buyers at the closing table were petty and complained about holes in the wall of the residence. The small holes were caused by the removal of the seller’s hanging pictures. At the closing table I volunteered that the holes came with the sale. This comment could have canceled the deal. Disclose. Disclose. Disclose. A transaction is not the same as a first date when one suggests to the date that he is a professional baseball player. Disclose and be truthful.

4. Getting title insurance is daredevil business. The use of title insurance is common today. Advising a land or commercial client to only obtain standard title insurance is to invite a malpractice claim. Under South Dakota law standard title insurance insures against “loss by encumbrance, or defective titles, or invalidity, or adverse claim to title.” Standard title insurance has significant limitations. Generally speaking, title insurance covers only whether the owner has good ‘legal title’ to the land. Title insurance will not cover the physical state or condition of the land. Mineral interests and mineral ownership are not covered by title insurance. The existence of environmental contamination is not an insured event. The existence of zoning laws or related

covenants which restrict the use of property are not an insured condition. One court has held that, “zoning or environmental laws of general application, which are not recorded against specific parcels of property, are generally excluded from standard form ALTA title insurance policies . . .” There is an important difference between having good legal title — and the physical condition of the land itself. One can obtain perfectly good insured legal title to valueless property. That’s why you hire a lawyer.

David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law.