Bulletin: TX2009005

Dear Associates:

We are pleased to announce that the Commissioner has issued his order confirming the proposals that Stewart and the Texas Land Title Association made as to the proper way to handle mineral exceptions and coverages. You will recall that Stewart filed the initial pleading with the Commissioner requesting that his earlier Bulletin be withdrawn. After a hearing with animated testimony by all side, the Commissioner requested a compromise agreement be negotiated and presented to him. This agreement has now been negotiated and approved by the Commissioner after additional hearings. The order is effective November 1, 2009.

Commitment

The Title Information Sheet on the Commitment has been revised to add the following language:

The Policy is not an abstract of title nor does a Company have an obligation to determine the ownership of any mineral interest.

---MINERALS AND MINERAL RIGHTS may not be covered by the Policy. The Company may be unwilling to insure title unless there is an exclusion or an exception as to Minerals and Mineral Rights in the Policy. Optional endorsements insuring certain risks, including minerals and the use of improvements (excluding lawns, shrubbery and trees) and permanent buildings may be available for purchase.

This amendment addresses concerns expressed by customers that they were not aware that minerals were not routinely insured.

What you need to do:

Commitment forms are being revised and you need to do nothing special in this regard.

Exception or Exclusion regarding minerals

Procedural Rule P-5, prohibiting general exceptions, has been left intact. A new Procedural Rule P-5.1 has been promulgated. This rule defines minerals as meaning coal, lignite, oil, gas and other minerals in, under and that may be produced from the Land, together with all rights, privileges, and immunities relating thereto. It restates the notice from the coverage statement that the policy is not an abstract of title nor does the company have a duty to search for mineral ownership.

The rule then provides that the Company may take an exception for minerals using the following language:

On Schedule A:

Subject to and the Company does not insure title to, and excepts from the description of the Land, coal, lignite, oil, gas and other minerals, together with all rights, privileges, and immunities relating thereto;

Or

On Schedule B:

"All leases, grants, exceptions or reservations of coal, lignite, oil, gas and other minerals, together with all rights, privileges, and immunities relating thereto, appearing in the Public Records whether listed in Schedule B or not. There may be leases, grants, exceptions or reservations of mineral interest that are not listed."

What you need to do:

You are not required to do a complete search for minerals. We advise you that when you encounter a document that appears to reserve, convey or affect minerals or provide evidence that a document exists that affects the mineral estate, you should use this exception. You do not have to identify the exact recorded document or whether there is a recorded document. The reference to a document is sufficient. We believe that you may use either the Schedule A or Schedule B language or you may use both. In any event, if you use either or both exceptions, you must issue one or more of the applicable endorsements (T-19.2 or T-19.3) as provided in Procedural Rule P-5.1. Since you will have taken exception to minerals, the estate being insured can remain "fee simple" or whatever estate you are insuring. If you are asked to specify the mineral estate and can reasonably do so with your title plant supplemented by the courthouse records, it is not sufficient to do a 60 year search (or whatever time period is appropriate in your county due to mineral activity in the past) and ignore possibility of state ownership of some minerals or royalty interest. Unless you have already searched the mineral title in the past, you will need to go back to the patent or otherwise be satisfied that either the patent is pre- 9/1/1895 or that you have verified whether minerals were reserved. As to patents before September 1, 1895, the state does not own the minerals. As to patents between September 1, 1895 and August 21, 1931, the examiner should look at the patent and secure a Certificate of Classification or Certificate of Facts from the General Land Office to determine whether the land was formally classified as mineral land (for example, all public free school land sold since 1919 was classified as mineral land); if the land was formally classified as mineral, an exception must be made to all of the minerals retained by the state, regardless of whether a reservation appears in the patent. As to patents after August 21, 1931, the examiner may rely upon a review of the patent to determine the mineral and/or royalty interest retained by the state (generally land subsequently sold after August 21, 1931 and until September 1, 1983 reserved a 1/16 th free royalty, and land sold subsequently by the state reserved no less than a 1/16th free royalty). (For more information on state ownership of minerals please see section 12.16.04 of Virtual Underwriter or the article posted on stewarttexas.com).

P-50A is the revised rule dealing with T-19 and T-19.1. It requires that coverages regarding minerals may be insured by the use of the new T-19.2 or T-19.3 as provided in P-50.1 (discussed in the next section).

P-50.1 Minerals and Surface Damage Endorsement (T-19.2), and Minerals and Surface Damage Endorsement (T-19.3)

The T-19.2 and T-19.3 Endorsements are required or available only when Minerals and Surface Damage coverage is not provided to the insured by issuance of a T-19 or T-19.1 Endorsement, as provided in P-50.

Any insured matter covered in the Minerals and Surface Damage Endorsement T-19.2 or T-19.3 may be insured only by the use of these endorsements, except that coverage regarding minerals may be insured by the use of the T-19 or T-19.1 endorsements as provided in P-50.

1. When the policy includes an exception regarding minerals as provided in Procedural Rule P-5.1: As to real property of one acre or less improved or intended to be improved for one-to-four family residential use, upon request of the Insured the Company must issue its Minerals and Surface Damage Endorsement (T-19.2) to an Owner's or Loan policy
   
   
2. As to real property improved or intended to improved for office, industrial, retail, retail/residential, or multifamily purposes upon request of the Insured the Company must issue its Minerals and Surface Damage Endorsement (T-19.2) to an Owner's or Loan policy
   
   
3. As to other real property, upon request of the Insured the Company must issue its Minerals and Surface Damage Endorsement (T-19.3) to an Owner's or Loan Policy.
   
   
4. As to an Owner's or Loan Policy covering multiple parcels of real property that consist of a combination of real property described in paragraphs 1,2, and 3, upon request of the Insured the Company must issue for each parcel the applicable Minerals and Surface Damage Endorsement (T-19.2 or T-19.3) to an Owner's or Loan Policy. The adopted form provides for Parcel numbers.

What you need to do:

If you have determined to use the mineral exception discussed above, you must provide either the T-19.2 or T-19.3 endorsement depending on the type of property being insured. All residential property containing 1 acre or less which is or is intended to be 1-4 family residential property must have the T-19.2 endorsement. All commercial or mixed use property must use the T-19.2. All other property must use the T-19.3. If the policy covers tracts some with minerals and some without, you must issue the applicable T-19.2 or T-19.3 on the affected tracts. "Other property" could include farm and ranch land, access easements, conservation easements, and similar rights. If you have questions, please call a Texas underwriter.

In determining the intended use of property, we believe that an affidavit from the proposed insured is sufficient to comply with the rule.

R-29.1 Premium for Minerals and Surface Damage Endorsement (T-19.2), and Minerals and Surface Damage Endorsement (T-19.3)

A. When the Minerals and Surface Damage Endorsement (T-19.2) is issued in accordance with Rule P-50.1, the premium shall be $50.00.

B. When the Minerals and Surface Damage Endorsement (T-19.3) is issued in accordance with Rule P-50.1, the premium shall be $50.00.

What you need to do:

R-29.1 is a new rule dealing with just the new T-19.2 and T-19.3 endorsements. Once you have determined the existence of some mineral reference and the appropriate endorsement, the premium for either of the new endorsements is $50.00. If there are multiple tracts, each tract bears a separate endorsement.

If you have questions related to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.

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