Rumors of the Death of “Title Washing” Are Greatly Exaggerated

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Summary

On May 9, 2014, the Pennsylvania Superior Court reinvigorated a practice in Pennsylvania known as “title washing,” which has gained importance in recent years due to the development of the Marcellus Shale. Herder Spring Hunting Club v. Keller, 2014 Pa. Super. 100, No. 718 MDA 2013 (Pa. Super. May 9, 2014). The decision establishes a bright line test (whether a severed ownership interest in mineral rights was reported to county taxing authorities) that few descendants of those who reserved mineral rights decades ago are likely to be able to satisfy.

Background

Title washing is an ancient Pennsylvania practice impacting title to land that resulted in merging the surface and mineral estates, after they had been severed (either by sale or reservation), under limited conditions. It occurred only in the context of “unseated land” (undeveloped surface land) that was severed from the oil, gas and mineral rights (“mineral rights”) either by a deed selling them or a deed reserving them to an owner who sold off the surface. Then, if the mineral rights were not separately assessed for taxes, the surface estate was sold at a tax sale and the mineral rights were merged back into the title with the surface estate, “washing” or extinguishing the rights of the person owning the mineral rights. See, e.g., Proctor  v. Sagamore Big Game Club, 166 F.Supp. 465, 475 (W.D. Pa. 1958) (“When there is no separate assessment of the minerals, a purchase of the whole by the owner of the surface divests the title of the owner of the minerals.”).

There has been considerable debate over the continuing viability of this practice, and while the law does not permit new title washing today, the effect of the practice on about 150 years of titles in Pennsylvania remains alive.

Herder Springs Case

The issue before the Herder Springs court was who owned the mineral rights to a 460-acre parcel in Centre County known as the Eleanor Siddons Warrant (the “Property”). As with many title washing cases, the chain of title was convoluted. Herder Spring Hunting Club (“the Club”) was the undisputed owner of the surface rights, having acquired the property in 1959. In 2008, the Club sued Harry and Anna Keller to quiet title, who in 1899 transferred the surface estate, but reserved the mineral rights. The heirs of the Kellers (“Keller Heirs”) stepped in to defend the claim, and asserted that they owned the mineral rights.  

In 1899, the Property was “unseated land” meaning there were no improvements to the property. The surface rights were transferred several times after the 1899 transaction, and in 1935, the Centre County Commissioners acquired title to the property when it was offered for sale for unpaid real estate taxes, but no buyers came forward. In 1941, the Centre County Commissioners sold the property to Max Herr, who died in 1944. In 1959, Herr’s widow sold the property to the Club. In acquiring the property, the Club became aware of the 1899 reservation, and accepted a deed making the conveyance subject to all exceptions and reservations in the chain of title.

The Centre County Court of Common Pleas determined on cross-motions for summary judgment that the Keller Heirs owned the mineral rights. The Superior Court reversed, and determined that the Club owned the mineral rights. By doing this, it has reinvigorated the practice of title washing which has been the subject of considerable debate.

Basis for Superior Court Decision

The Superior Court’s decision is based on its interpretation of Section 1 of the Act of 1806, March 28, P.L. 644, 4 Sm.L. 346, codified as 72 P.S. § 5020-409 (the “1806 Act”). The Act provided that any person acquiring any interest in unseated lands was required to provide a statement to the County Commissioners or Board of Assessment with the details of the interest acquired. If a person did not provide such a description to the County, it was presumed that the taxes levied against the property were for all interests in the property. Therefore, if there was a tax sale for failure to pay taxes, everything for which taxes were owed was sold, including any mineral rights that were not separately assessed.  It is worth noting that the 1806 Act was repealed in 2010. Nevertheless, from 1806 through the date of the repeal, landowners were required to comply with its terms or suffer the consequences.

The Superior Court ruled that because the Kellers did not provide proof that they notified the county of their retention of the mineral rights after selling the surface rights in 1899, the County Treasurer obtained the property as a whole in 1935 because the tax sale “washed” the Kellers’ interest in the mineral rights that had not been reported to the taxing authority. Herr then acquired the property as a whole in 1941, and transferred it as a whole in 1959, even though the Club was aware of the 1899 reservation and it was acknowledged in the 1959 deed.

Essentially, the Superior Court has said that the burden of avoiding a title wash was on the one claiming the separate title to the minerals, who must show that he or his predecessors gave adequate notice of the severance of the minerals from the surface so that the county authorities could tax the minerals separately. Especially in light of the 1806 Act, this makes perfect sense as the General Assembly placed the burden of notice of the severance on the mineral owner, not the county taxing authorities.  

The Superior Court noted that its decision may seem “unduly harsh” because the Kellers lost the previously reserved mineral rights. While that may be true, the record is silent as to what if anything the Kellers and Keller Heirs did with their interest or actions they took to protect their interest in the 115 years since the rights were reserved. Without any such record, the result may only be “unduly harsh” in the sense that the Keller Heirs may have been surprised in one instant to learn that they were the putative owners of hundreds of acres of mineral rights in the lucrative Marcellus Shale, only to find out in another instant that those rights had been “washed” decades earlier.

Recent Debate Over Title Washing

Recently, some commentators have posited severe restrictions on, if not the death of, the application of title washing as it applies to natural gas lands. See e.g. Ronald L. Hicks, Jr. & David G. Oberdick, Debunking The Myths Surrounding Natural Gas Title Washing: “How Can One’s Title Be Divested if Natural Gas Was Not And Cannot Be The Subject Of A Proper Real Estate Tax Assessment,” 85 Pa. Bar Q. 14 (2014) (arguing that concepts of Pennsylvania real property law, tax sale law and due process, among others, could not tolerate the notion of title washing as applied to natural gas lands). The Superior Court’s decision stands this analysis (and several others) on its head.

Next Steps in Herder Springs Case

While the Keller Heirs can petition for review by the Pennsylvania Supreme Court, the ruling by the Superior Court is now binding on all county courts. The Superior Court’s decision establishes a bright line test (whether a severed ownership interest in mineral rights was reported to county taxing authorities) that few descendants of those who reserved mineral rights decades ago are likely to be able to satisfy.

Conclusion

The Marcellus Shale continues to show amazing promise, as does the even deeper Utica Shale, and who owns the mineral rights throughout the Marcellus and Utica basins is an integral part of that developing story. As with other legal issues associated with mineral and oil and gas rights in Pennsylvania, the courts rely both on ancient principles and new ways of looking at ancient law in developing the emerging law of oil and gas in the Commonwealth. The law surrounding title washing is still developing and there are other issues that have yet to be resolved. When issues arise regarding ownership of oil, gas and mineral rights in Pennsylvania, people are well-advised to seek legal counsel with experience litigating such disputes. The Oil and Gas Practice at Saul Ewing stands ready to help.

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Topics:  Deeds, Land Titles, Marcellus Shale, Mineral Rights, Oil & Gas, Property Tax, Real Estate Investments

Published In: Energy & Utilities Updates, Commercial Real Estate Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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