Bulletin: TX2012006

Dear Associates: 

Stewart Title Guaranty Company has experienced significant claims because of outstanding rights to mineral and other substances that were not excepted in the title insurance policy.

These losses often have occurred because the search of title was not long enough to discover the severance of rights in mineral and other substances, or because the title insurance agent relied on a starter, such as a prior title insurance policy.

An important issue addressed by this bulletin is that use of a starter file from another company is not sufficient on which to base removal of the broad general exception allowed by Procedural Rule P-5.1.

This bulletin is a supplement to our search bulletin TX000065 and to TX2009005.

Company Policy:

Add the following exception in Schedule B of each Commitment, Binder, or Policy, other than a Short Form Loan Policy T-2R, unless you secure Underwriter approval to remove the exception based upon an extended search and examination required by the Underwriter and consideration of any state law reserving mineral or similar rights apart from patent reservations. (We have quoted below from our Bulletin TX2009005 our discussion about Texas patent law.)

Procedural Rule P-5.1 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."

Please note: A starter file may not be relied upon for the search and examination required to remove this exception.

Always include in Schedule B any specific grant, reservation, or lease of minerals or other substances (such as caliche, gravel, rock, coal, lignite) that your search reflects.  You should also add the following at the end of any such specific exception (although the policy does not insure the title to any interest that is excepted): "The Company makes no representation as to the present ownership of any such interests. There may be leases, grants, exceptions or reservations of interests that are not listed."

Texas Patent Search information:

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 1/16th 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 12.16.4 of Virtual Underwriter or the article posted on stewarttexas.com).

Update on Loan Policy charges for T-19.2 and T-19.3:

We take this opportunity to update you on the topic of Bulletin TX2012001. In it we stated "Clearly, even though the Commissioner has not formally changed the regulations, title companies must comply with the law as must the TDI Staff. You should change your procedures and software to reflect that there is no longer a 2% credit when a general mineral exception is used and that the premium for a loan policy T-19.2 or T-19.3 is $0."

The Commissioner has not yet issued the order on the 2012 Rules hearing but the loan policy premium for a T-19.2 and T-19.3 remains $0. We will advise you when an order on this subject is issued.  

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.