SARAH SORUM BJORK LINDLEY LITTLE PC DENVER, CO How Do We Fix This? Bankruptcy, Tax Sales, Foreclosures, and Liens.

SARAH SORUM

BJORK LINDLEY LITTLE PCDENVER, CO

How Do We Fix This?

Bankruptcy, Tax Sales, Foreclosures, and Liens

“Who can be more nearly a fiend than he who habitually overhauls the register of deeds in search of defects in titles, whereon to stir up strife and put money in his pocket? A moral tone ought to be infused into the profession which should drive such men out of it.”

- Abraham Lincoln

CONFLICTING THEMES

Certainty, Security and Simplicity of

Title

Due Processvs.

DUE PROCESS CLAUSE

5th and 14th Amendments to the U.S. Constitution:

Neither the U.S. nor any State shall deprive any person of life, liberty or property without due process of law.

Protected property interests include surface, minerals, mortgages or other liens, easements, etc.

WHAT DOES DUE PROCESS REQUIRE?

Before property can be taken by the state (for example, by tax sale), the owner of any interest in that property must receive notice “reasonably calculated to apprise him” of the pending tax sale or other proceeding.

THE PROBLEM FOR THE TITLE EXAMINER

How can we determine from the records in the abstract or courthouse whether constitutionally sufficient notice was given of a tax sale, mortgage foreclosure or similar proceeding?

Frequently, we just can’t!

As a result, title opinions contain requirements for quitclaims or quiet title actions to extinguish potential claims of owners who may have received insufficient notice.

BANKRUPTCY

PRIMARY ISSUES FOR TITLE EXAMINER

No constructive notice is given by filing of the petition; therefore, examiner has no duty to examine the bankruptcy court docket.

If the petition or other evidence is properly recorded, then the public is on notice.

HOW TO CURE

Bankruptcy Petition REQUIREMENT: Investigate what became of the

bankruptcy estateSale by Trustee or Debtor-in-Possession

REQUIREMENT: Determine whether sale was authorized by

bankruptcy court after notice and hearing

Closing Schedule with Property not described REQUIREMENT: Review the reorganization plan to

determine what became of residuary assets

TAX SALES

TAX TITLES INHERENTLY SUSPECT

Courts have required strict compliance with detailed statutory procedures for tax sales

More recent cases suggest a growing reluctance by the courts to set aside tax deeds for alleged deficiencies

TAXATION OF SEVERED MINERALS

Authorized in Colorado, though not all assessors make it a priority

Tax rolls for severed minerals are rarely accurate

HOW TO CURE

Options:

1) Quitclaim Deed from taxpayer (or successors) to tax sale purchaser (or successors)

2) Quiet Title3) Assume the risk

MORTGAGE AND

OTHER FORECLOSURES

FORECLOSURE GENERALLY

Mortgages v. deeds of trust

Power of sale provisions (no state action) v. Judicial foreclosures (state action)

Colorado’s unique system

Debtor protections

• Notice• Right to cure before sale• Right to redeem after sale

PRIMARY ISSUES FOR TITLE EXAMINER

Colorado

1) Statutes provide that sheriff’s deed constitutes prima facie evidence of notice, but that is a rebuttable presumption that can be overcome by evidence to the contrary.

2) Statute protects rights of “omitted parties,” e.g.: junior lienor

MECHANIC’S, MATERIALMAN’S,

AND MINER’S LIENS

Generally, these types of liens are provided by state statute to ensure payment to the supplier of goods or services. Some states also provide for liens specific to oil and gas operations.

“SECRET” LIENS

Because lien statutes typically provide that the lien attaches when the labor or materials are first provided, your lands may be subject to a valid lien that has not yet been recorded.

North Dakota General Construction Lien• 90 days after completion of work (as to BFPs) or

up to 3 years (as to other parties)

North Dakota Oil and Gas Lien • 6 months after completion of work

JUDGMENT LIENS

Judgment liens are created by a court (or by statute, in some states) after a creditor wins a lawsuit against a debtor. The lien allows the creditor to take possession of the property if the debtor fails to pay the obligation.

E.g.: Medical debt

CHILD SUPPORT LIENS

Many states allow a party that is owed child support payments (typically the custodial parent) to file the lien directly without the necessity of court involvement. That party can then force the sale of the property (after some period of time) to recover the money owed.

HOW TO CURE

Lien statutes provide a timeframe after which the lien “expires.” If a lien has been recorded and has not expired, it must be released or satisfied of record.

OTHER CURATIVE OPTIONS?

Adverse Possession?

Marketable Record Title Acts?

Dormant Mineral Laws?

ADVERSE POSSESSION?

Adverse possession is a legal doctrine by which a party in possession of land for the statutorily-prescribed period of time can obtain title as against the legal record owner

REQUIREMENTS

Possession must be:• Actual• Open & Notorious• Exclusive• Continuous• Hostile to the true owner• Under color of title in some states• For period of possession prescribed by

statute

“Objective Evidence”

. . . Can you tell?

All elements are fact-specific, and certainly won’t be available from the records

Further, adverse possession generally does not apply to severed minerals because they have not been “possessed”

So… rarely helpful for our purposes

MARKETABLE RECORD TITLE ACTS?

MARKETABLE RECORD TITLE BASICS

If person has unbroken record chain of title for a specified number of years (e.g. 40 years) back to “root of title,” then all conflicting claims and interests based on title transactions prior to root of title are extinguished.

Enacting states include Nebraska, North Dakota, Oklahoma, South Dakota, Utah and Wyoming.

States vary in their requirements under the Act.

But… most states except mineral assets from the statute’s application

DORMANT MINERAL ACTS?

Statutory attempt to address the problem of mineral owners that can’t be located. Allow another party (e.g. surface owner) to claim the “abandoned” minerals.

Passed by some (but importantly not all) states

The mechanics and result of each state’s statutes vary widely, though many are based on the Model Dormant Mineral Interests Act.

These statutes typically focus on whether or not the minerals have been “used” for some prescribed period of time (ND: 20 years)

“Use” can often take the form of a recorded Statement of Claim

“[N]ot a model in drafting clarity.”

Sorenson v. Felton, 793 N.W.2d 799, 802 (N.D. 2011)

REASONABLE INQUIRY AND NOTICE

Designed to be “self-executing;” i.e.: should not require quiet title action

2009 addition of N.D. CENT. CODE § 38-18.1-06.1, which provides that the surface owner “may” institute a quiet title action

Prudent examiners still require a judicial determination

QUIET TITLE PROVISION

PAYMENT OF ROYALTIES

North Dakota: 150 days Does NOT apply “in the event of a dispute of title existing

that would affect distribution of royalty payments”

Colorado: 6 months Suspended in the event of “reasonable doubt by payer as

to the payee’s identity, whereabouts, or clear title to an interest in the proceeds”

QUESTIONS?

Sarah [email protected]