I'm in a situation where the developer of my condo building has been collecting oil royalties for 32 years. The owners found out recently that the mineral rights were never reserved and that we are entitled to the royalties. I produced a chain of title and 2 oil production companies (PXP and Venoco) started sending me royalty checks. They claim that the mineral rights were never reserved by the developer. But they have been sending the royalties to the developer for all those years because no change of ownership was ever supplied to them.
The developer insists that he is entitled to the royalties. Could he possibly have been ASSIGNED the oil and gas lease? Is that different than RESERVING the mineral rights?
I have been sent a copy of the lease from PXP and Venoco who, again, say that there is no evidence that the developer is entitled to the royalties.
I am taking the developer to small claims court for conversion of tangible personal property and asking to be paid the full amount, plus interest, that he collected in my stead over 24 years.
Any thoughts on the difference between an assignment of a lease and the reservation of mineral rights in California.
An assignment of a lease is typically an assignment between lessees (operators). Such as from Chevron to PXP. Minerals are usually reserved and then can be conveyed from one person to another through deeds, probate, a will, etc. just like surface property.
Thank you. This makes sense...I think! I have a copy of a Corporation Grant Deed which has a company called Thermobuilt, Inc of Texas and a company called PALS Inc of California as Grantors who "assign, transfer and convey unto Grantees [my developer's Limited Partnership] all Grantor's right, title and interest in and to any oil and mineral rights and leases....royalties..." I can not find any information on these two companies other than Thermobuilt is "Not in good standing" with the State of Texas.
But I don't know what business they are in!!! Were they Lessees? I thought the lessees were Standard Oil, then PXP and Venoco.
But the big question is: If he was assigned the mineral rights, does the developer STILL have to reserve them on a grant deed when he sells the property. Or do they belong to him in perpetuity?
AND.... wouldn't PXP and Venoco know that the mineral rights were assigned? They both maintain that since we own the property, we are the owners of the mineral rights.
From what you have said, it appears that the developer acquired the rights of Thermobuilt and PALS to the oil and mineral rights, subject to the lease, as well as the revenues therefrom. Since you have performed title research, you have the legal description to the development tract for the condominiums. I’d look at the Parcel Map for the development to see if there was any indication of intent therein.
Yes, the developer has to reserve the minerals - and preferably the lease and the revenues - to retain them. They would pass to you under the warranty deed unless such was done.
However, even though they may have passed, the Lessee, PXP, now Venoco, would not have known that the title passed to you unless informed. In most leases, Venoco would have the right to suspend the revenue until ownership was confirmed. Without notice from you, Venoco would keep paying the developer.
I don’t know if you have a case against the developer. The developer sold you the property. You have a title report which would show the lease as an encumbrance against the property, so you are on notice that it exists. You might discuss this with the developer - and check with your neighbors to see if they are in the same situation - and join together in discussions.
In fact all 18 owners received a letter from Venoco stating that in perusing LA County records, they found that we were owners of the property and, after we sent a chain of title, they confirmed that we owned the mineral rights and were entitled to the royalties. PXP also pays royalties and when we contacted them and supplied a chain of title, they also confirmed that we owned the property, and therefore the mineral rights.
Wouldn't an assignment of rights have shown up as an encumbrance when they did their title search???
The developer has been collecting the royalties for 32 years! When we approached him, he insisted that he "is entitled" to them and will not budge. Although he did offer us a small settlement AND he is no longer collecting them. I want to take him to small claims court for conversion. I have talked to 3 lawyers who confirm that this is the case.
But the validity of "assignment" by Thermobuilt (are they an oil company????) is giving me doubts.
Pat, Once a lease is signed, and production begins, the operator does not taken it upon themselves to review the validity of ownership unless a question or issue arises. In this case, someone brought it to their attention and they subsequently determined that they were paying the wrong owners and alerted all affected parties to such. The burden of responsibility to update the ownership with the operator falls upon the property owners. However, in your case it sounds like none of the condo owners really knew they owned it therefore it had gone unnoticed for years. It is possible the developer knew he passed minerals and never told anyone (so he could keep the royalties), and it is also possible he thought he had retained the minerals therefore it was a non-issue.
ALSO - what you are calling an "assignment" is not really an "assignment" by definition regarding to different types of instruments. It is just the legal language to convey the property. The instrument is called a "Corporation Grant Deed", and although I am not a California Title expert, I would consider the definition of your instrument to be a "Deed" as opposed to an "Assignment". Assignments are usually an instrument where one operator (lessee) assigns their interest (partial or whole) to another operator. That would be the working interest as opposed to the mineral interest. I'm sure there are exceptions to everything I said and someone on here can point out possible errors, but for simplicity sake, I hope that clarifies what is an assignment vs a deed.
"It is possible the developer knew he passed minerals and never told anyone (so he could keep the royalties), and it is also possible he thought he had retained the minerals therefore it was a non-issue."
This is exactly what we think! One of those scenarios.
We live in the middle of LA, adjacent to Beverly Hills, in a densely populated neighborhood that was developed in the 20s. There was no reason anyone in the building would have said, "I wonder if they are pulling oil from underneath our condo. I'll bet we're due royalties!"
The well in question is over 2 miles away. It was a fluke that Venoco found the change in ownership and contacted us. And it was a violation of the oil and gas lease for the developer not to advise Venoco and PXP in the change of ownership.
I personally think they THOUGHT they reserved the mineral rights, but it fell through the cracks. The fact is that if you want to reserve the mineral rights for yourself, it has to be stated on the Grant Deed to the first person you sell to. There are no Warranty Deeds in California. But then I heard that if they were ASSIGNED to someone, that was a way to retain them.
So I'm going forward with taking him to small claims court for conversion and I will attempt to get part of the $13,000 he collected in my stead over 24 years. We figure he pocketed close to $500,000 over the last 32 years from all the owners. Son of a bitch :-)
I do wish someone in Texas knew who Thermobuilt, Inc. was. They are not on my preliminary title report as an owner of the property. There were in fact owners who held an oil and gas lease and sold to the developer.
Pat, Very interesting. I know what area you are describing. I have had many family members who have lived in the LA area over the past century and have always been intrigued by current surface owners who may actually own minerals there. It is interesting to hear stories about people who still get royalties from wells drilled decades ago. Sometimes people (like you) get lucky and something slipped through and you got an unexpected royalty. Unfortunately it is quite late. I usually advise friends / family to verify their mineral rights. Just because someone "said" something about minerals, doesn't mean anything. I want to see the chain of title (deed records) for myself. I worked in the title industry before and have seen too many things slip through the cracks. With oil and gas (minerals) I believe the chance of errors is even greater, because there is less understanding about it than other (more common) title issues. There was recently a case here in Texas that a subdivision developer tried to "reserve" the mineral rights on his plat, but never had a reservation on the deeds to homeowners. Court ruled against developer. In that case I'm not sure a well was ever drilled resulting in royalties but the homeowners would have gotten it if they did (no paying the wrong owner). Keep me informed on your case if you would. You are the second person in the past year from the LA area that has had this issue where they found out they were owed royalties and had their home for two decades.
Thank you, Kitchen! I just got off the phone with the woman I've been dealing with at PXP and she said, categorically, that the developer did not reserve the mineral rights. I asked her about assignment and she said, "Pat, he did NOT reserve the mineral rights. Take him to court!" So I am. There is no reservation on any original deed that I have seen, let alone mine. In your title experience does it have to be on the original only or on subsequent deed?
I believe your question may be state specific. In Kansas at my particular title company, if minerals were EVER reserved on the property, we ALWAYS added that to the legal description. "Lot 1 Block 1 Blackacre Subdivision Anytown, USA, LESS and EXCEPT any/all Mineral Rights reserved in Book 100 Page 322". Even if the minerals were reserved 5 deeds prior to the current one, we would include the reservation - so that everyone has notice that the minerals MAY be severed. This is state specific because the minerals could actually revert to the surface owner in Kansas (with proper legal procedures) (this is not the case in Texas, Oklahoma, others).
Texas is far less consistent than Kansas with deeds. In Texas I usually see the owner of the entire estate (minerals and surface) deed the surface to "New Owner", reserving all mineral rights, oil, gas, royalties, etc. "New Owner" then deeds it to "Baby Owner" and the deed never mentions the reservation, because New Owner didn't own the minerals, why bother with a reservation or exception in the deed? Sometimes people truly don't know if they have minerals or not and I have seen language like "reserves any ownership, interest, in minerals, royalties, oil and gas, if any" or similar. Personally, I like the constructive notice we provided in Kansas, regardless if the current owner received a deed that alerted them of the mineral reservation prior. But we also ran real title searches in Kansas. My experience in Texas is that many companies just rubber stamp policies and fill out a new deed for the transaction, without doing the research to verify any possible reservations, exceptions, or other title issues. Most new title insurance policies don't insure minerals anyways so why bother?
Either way, I don't believe there is any consistency with mineral / royalty reservations. That's why I said I don't trust anything (even from a title company). I want to see the deeds myself. Unfortunately, 99% of people will not have the knowledge, background, or interest to do thorough research.
Well, I think I have done the bloody research! I spent hours at LA County Records looking at microfiche. And I have the deeds, including the one from the original owner. I'm up to here in files on conversion and copies of deeds from 1981 and case law.
The only thing I have not done is an actual title search for ownership of mineral rights that would stand up in court because it may cost as much as $1500. I believe if I can state California real estate law that says you must reserve the mineral rights on the Grant Deed and the developer did not, I should be okay. But it's tempting to do that title search and just plop it down in court :-) This guy is threatening to sue me for malicious prosecution if he wins.
If you researched all instruments filed by your legal description (not just searching by name) and revealed no additional instruments, then it is possible a mineral title search would not reveal anything different than what you already found. So if good research is already done (PXP telling you (and your neighbors) it is yours) means they should have their own mineral title opinion for your property), then obtaining a mineral title search is probably useless at this point.
Besides, if the developer REALLY had title, wouldn't they have produced documentation of good title to PXP as to not lose their income? Considering the amount of money at stake, I'm pretty sure they would have fought the battle with PXP to prove ownership by now, if they had any credible documentation to prove they rightfully own the minerals. In this case I believe that answers any question about what "could" arise from a mineral search. If there were any aces to play in this game, the developer would have used them by now.
Thank you, Kitchen. That's pretty much what I think. If they owned the mineral rights they would have contacted PXP with proof to continue to collect the royalties. Or sent us all proof to shut us up. Instead they just keep saying in letters, "we are informed that we are entitled to the mineral rights" but they won't say who informed them. It's actually pretty hilarious. And I kind of look forward to my day in court with them.
They may try to just pay me for a year which I think I have arguments against. I just hope the judge sees this guy for the thief that he is :-) It's really quite egregious what he has done.
You have been so very helpful. You saw it all instantly. Thank you very much, Kitchen (is that your real name???)