I’ve been asked to speak at the meeting of the South Dakota Paralegal Association in October. The Association official asked me to speak about environmental and natural resource issues affecting real estate transfers.  I am honored to speak at the upcoming virtual meeting of the Association. The topic presents contemporary issues and is worthy of the readers consideration.  I will here provide some of my talk on this subject.

Purchasing title insurance on a land deal gives specialized protection to the policy holder.  However, title insurance does not cover mineral interest ownership and does not provide protection on environmental problems that exist or may arise from ownership of the purchased land.

In practice real estate sales and transfers do not often follow a careful procedure, and do not use careful language when environmental and natural resource issues are involved.  I have observed this in both East River and West River transactions.  The standard sales agreement (the suggested official contract) provided by the South Dakota Real Estate Commission is not helpful.  Language in the agreement disregards the party’s ownership rights because mineral interests are not addressed.  And the matter of reserving or selling mineral rights reflects even more mistakes.  The wording in this standard state commercial and agricultural agreement leaves the grantor at risk because mineral interests are not described in the transfer sections of the agreement.  When one gives a warranty deed to land in South Dakota he gives a ‘warranty’ of his ownership of the surface and all that lies below it. That’s a pretty powerful warranty.  Homework should be done before giving such a warranty.  This is further compounded by the fact that title insurance does not cover mineral interests, and indeed some title companies will not search or report mineral interests on a written title policy.  Wyoming, Colorado and Montana have addressed the issue of mineral interests in official forms.  South Dakota has not. I have publicly advocated for such a change in the state’s standard agreement for some time now.  The reader will observe that my influence over state issues is quite underwhelming.

The purpose of Wyoming’s mineral disclosure law, according to the President of the Wyoming Realtor’s Association, was to avoid the unpleasant surprise encountered by buyers thinking they owned mineral rights only to find that a third party would appear on their land, and start digging on the property. By making the buyer aware of the possible severance of mineral rights, Wyoming’s disclosure law allows a prospective purchaser to make a more informed decision when purchasing real estate whether commercial, agricultural or residential.

Underground trespass.  What is it?  Not easily defined, the law came into existence before air travel and fracking for minerals.  It is discussed arcanely in this manner:  The Second Restatement of Torts follows old English law and states, “a trespass may be committed on, beneath, or above the surface of the earth.”

How does underground trespass occur on the plains?  Without belaboring a lot of examples, underground trespass might occur from underground pipeline leaks, leaking or corroded underground storage tanks, active oil operators infringing a bit too far under unleased property, a so-called disposal well’s ‘waste fluids’ migrating beyond its permissible subsurface boundaries, and so forth.

Is a man’s subsurface his castle?  Maybe.  A Nebraska Court addressed the issue of underground trespass.  The court held that the operator of an injection well could be liable if the damaged party could show that fluid migration harmed the damaged party’s ability to produce oil.  The North Dakota Supreme Court separately ruled that a claim in underground trespass may be trumped by a properly obtained force-pooling order from the state authority which oversees gas and oil operations.  In the North Dakota case it must be noted that the claimant property owner did not allege any actual damage to his interests.  And a West Virginia court, in a case that was finally settled and dismissed, ruled that subsurface horizontal fracturing for minerals very close to a Plaintiff’s property line was to be considered underground trespass.  The lesson is that modern society and the laws that follow will consider the issue of trespass on more than just the surface of property.

Caveat Emptor is for fools. When buying and selling real estate, the buyer and seller must over disclose and over investigate the property.  For example, I require that a buyer of property, which includes mineral interests, state in writing that he researched the value of any mineral interests. This forces the parties to investigate the matter.   When selling real estate do not allow for laziness to become a deal breaker.  Over-disclose.  In fact: Disclose. Disclose.  Surface water rights (and landowner obligations) are another illustration.  A new landowner may be obligated as a so-called downstream landowner to accept an existing drainage project from an upper landowner.  But actual surface water drainage may not currently run on the land, and in doing a sale of the land the parties may be blissfully ignorant of the water rights of an upper landowner who is allowed by law to run water onto a lower landowner.  Surface water drainage issues are also not disclosed in the standard South Dakota residential sale disclosure form.  Doing a real estate deal is not a time for puffery.  A real estate transaction is not the same as a first date when one suggests to the new date that he is “a professional baseball player.”   Disclose and be truthful.  The world will work better.

David Ganje practices law in the area of natural resources, environmental and commercial law with Ganje Law Office. His website is Lexenergy.net.

David L Ganje
Ganje Law Offices
Web: lexenergy.net
605 385 0330

davidganje@ganjelaw.com

by David Ganje.