Big Sky Review - Issue 1

BIG SKY

2017 | ISSUE 1

Review

~ A M O N TA N A A G E N C Y N E W S L E T T E R ~

I

’m excited to introduce you to the first edition of Big Sky Review,

a quarterly newsletter for our Montana agents. The purpose

Page In This Issue

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of the newsletter is to provide current underwriting guidelines,

to offer education, resources and support as we work

Insuring Surface Damage Caused by the Extraction of Minerals

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Economic Center

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Title Professionals Errors & Ommisions Insurance

and address news and topics affecting our industry and your business. Our aim is

Introduction

together to navigate industry challenges and achieve success. The issues will be available in the Content Library of AgentNet® so you may refer back to them.

Please circulate among your teams and feel comfortable providing feedback; it is always welcome.

Our office will be closed in observance of the following holidays: MEMORIAL DAY Monday, May 29

Kindest regards, Amie Voss Montana State Agency Manager

The information contained in this document was prepared by First American Title Insurance Company (“FATICO”) for informational purposes only and does not constitute legal advice. FATICO is not a law firm and this information is not intended to be legal advice. Readers should not act upon this without seeking advice from professional advisers. First American Title Insurance Company makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American, the eagle logo, First American Title, and firstam.com are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates.

AMD: 02/2017

©2017 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF

I N S U R I N G S U R FA C E D A M A G E CAUSED BY THE EXTRACTION OF MINERALS The general rule of real property is that the owner of the Land owns both the surface rights and the mineral rights.

However, this general rule is more frequently than not abrogated by the fact that the mineral rights have been reserved, pursuant to the patent, or subsequently severed by an express grant, such as a conveyance, mortgage or lease.

A split estate occurs when the right to develop mineral deposits is severed from the surface. Therefore, one party may own the right to farm the land, build a house, or graze cattle, but another party owns the right to explore and extract the minerals located on or under the surface.

Determining whether the mineral estate has been severed from the surface estate can be challenging. Remember that some title plants in Montana may not have sufficient historical data to capture estate severances, and some title plants may not be set up to capture severed estates at all. Therefore, determining whether a mineral estate has been severed from the surface estate might call for an independent search that goes beyond traditional title searching protocol. This is especially true in Montana because of the historical and wide-standing title practice of using the “standard” general mineral exception (#7) which in many offices has replaced the practice of showing certain recorded documents, reservations or interests relating to minerals or related mineral activity on commitments and policies.

It is important to be mindful of how to underwrite in the face of mineral rights since it is not our intention to insure them.

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If the title search finds a severed mineral interest, a special exception for that interest could be inserted on Schedule B of the title commitment and policy.

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Another method is to specifically “less and except” the severed minerals from the Land described in Schedule A of the title commitment and policy.

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The other option is to show a broad general mineral exception on Schedule B of the title commitment and policy, for any right, title or interest in any minerals, or related matters.

Remember that if you do not show any exception at all, you are actually insuring that the parties own the minerals.

All commitments and policies issued in Montana include the following exceptions: 1. (a) Unpatented mining claims; (b) reservations or exceptions in patents or in Acts authorizing the issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted under (a),(b), or (c) are shown by the Public Records.

2. Any right, title or interest in any minerals, mineral rights, or related matters, including but not limited to oil, gas, coal, and other hydrocarbons, sand, gravel or other common variety materials, whether or not shown by the public record.

Even though it is customary in Montana to show the above general mineral exception in Schedule B of the title commitment and title policy that does not necessarily preclude the need for a determination of mineral ownership.

Quite often a buyer and/or lender will want coverage for surface damage caused by the extraction or development of minerals.

The ALTA Homeowners Policy of Title Insurance (“Eagle Owner’s Policy), the ALTA Expanded Coverage Residential Loan Policy (“Eagle Loan Policy”) and endorsements ALTA 9-06, ALTA 9.1-06, ALTA 9.2-06, ALTA 9.3-06 and FA 100.29 all provide surface damage coverage to the owner or lender respectively.

When using the general mineral exception in lieu of determining the status of the mineral ownership, you may ask “how do we underwrite surface damage coverage when we don’t know if the minerals have been severed? That is a very good question.

Determining that the mineral estate has not been severed from the surface estate is the most ideal way to provide this coverage, and it may be necessary to do a Mineral Guarantee to determine the mineral ownership, at least to what you have of record in your title plant relative to the described property.

Continued on next page

First American Title | Big Blue Review | 2017 - Issue 1

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I N S U R I N G S U R FA C E D A M A G E CAUSED BY THE EXTRACTION OF MINERALS continued

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If the minerals have been severed, we would need to determine the current mineral ownership and require that the mineral right holder clearly, expressly and unconditionally waive any rights of surface entry.

If you conclude that the mineral estate has been severed (or you are not sure whether there has been a severance) and if the rights of surface entry by all known mineral estate holders have not been clearly, expressly, and unconditionally waived in a recorded document, then make an “all facts and circumstances” investigation and analysis, and obtain approval from a Company underwriter to provide surface damage coverage. In making your investigation, be creative and use the resources at your disposal to gather information. The following factors are a framework to help you analyze the risks of your transaction, and may not be of equal weight, or even applicable at all, depending on your transaction. You should consider the following: »»

The type of policy involved (owner’s or loan policy) and the measure of loss for each policy type.

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The loan-to-value ratio if a loan policy (and whether an ALTA 20-06 First Loss endorsement is requested).

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The Amount of Insurance in the policy.

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Whether or not a prior policy has already provided the requested coverage, and if so, the type of policy (owner’s or loan policy), the Amount of Insurance of that policy, and the insurer who issued the prior policy.

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The extent, character, and location of existing improvements on the property and the length of time those improvements have been in place; and if the property is under development, the extent, character, and location of the planned improvements. Note that some types of improvements, such those involved in energy projects, can present much higher risks than

other types of improvements, and therefore may require much greater underwriting justification. »»

The identity of the current owner(s) of the mineral estate(s), and the likelihood that such owner(s) will seek to utilize the surface of the Land to develop minerals.

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If there has been a partial (but not full) waiver of the rights of surface entry by some or all of the mineral estate holders, the nature and extent of the waiver, and the relative percentage interests of the mineral estate holders that have waived rights of surface entry.

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The reason(s) why any absent waiver(s) of rights of surface entry have not been obtained.

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The nature, quality, and quantity of any minerals on the subject property and in the surrounding area.

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The nature and degree of any past or current mineral activity on the subject property and in the surrounding area.

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The feasibility of future mining or drilling for minerals, and any known plans to do so, on the subject property and in the surrounding area.

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The character of the surrounding area (such as whether it is heavily developed or largely rural).

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The legal and regulatory status of the property with regards to mineral development (including but not limited to zoning, planning, anti-mining laws, etc.), whether mineral development would be permissible under the current status, and the likelihood of a change in status or nonconforming use exemption permitting mineral development if not currently permitted.

Continued on next page

First American Title | Big Blue Review | 2017 - Issue 1

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ECON OM I C CEN TER

INSURING SURFACE DAMAGE CAUSED BY THE EXTRACTION OF MINERALS continued

By: Mark Fleming, Chief Economist

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The impact of any statutory provisions (such as marketable title acts, mineral estate reversion statutes, or similar statutes) upon any mineral estate holder’s rights.

In January, First American Chief Economist Mark Fleming’s research and analysis examined a possible connection between winning professional football teams and housing affordability, and the impact of rising rates on prices and sales.

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The impact of accommodation doctrines, principles of equity (e.g., laches, estoppel), or similar legal principles upon the mineral estate holder’s rights.

First American Economic Center January 2017 Research Highlights:

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The existence of an adverse litigation climate involving minerals.

Whether any restrictive covenants would limit the ability to develop minerals on the property, and whether those restrictive covenants are prior in record priority to the mineral estate holder’s interest.

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The existence of open space on the subject property which a mineral estate holder could use for mining or drilling without causing damage to improvements.

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The existence and terms of any surface use or compatible use agreement between the surface owner and holder(s) of the mineral estate(s).

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The existence and terms of any pooling agreement(s) between mineral estate holders.

First American Title | Big Blue Review | 2017 - Issue 1

»»

The Housing Benefit of Football Fandom http://blog.firstam.com/economics/just-in-time-for-the-big-game-the-housingbenefit-of-football-fandom

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Rising Rates and Strong Nominal Price Growth Halt SixMonth Run of Increasing http://blog.firstam.com/economics/rising-rates-and-strong-nominal-price-growthhalt-six-month-run-of-increasing-affordability

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Why Did Market Potential Pull Back in December? (Infographic) http://blog.firstam.com/economics/infographic-why-did-market-potential-pull-backin-december

We saw a widespread decrease in affordability in November, as all but three of the 43 major markets First American tracks saw increasing year-over-year growth in real house prices.

Yet, my research suggests that rising mortgage rates will, over time, moderate price growth more into alignment with the current pace of income growth. While affordability has declined compared to a year ago, housing is still as affordable as it was nearly two decades ago.

- Mark Fleming, Chief Economist

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Title Professionals Errors & Omissions Insurance Program Exclusive to First American Agents

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Coverage for Title Agents, Title Abstractors, Title Searchers, Escrow Agents, & Closing Agents.

$250,000 Limit for Reimbursement of Defense Expense Due to CFPB actions Standard Benefits A++ Rated by A.M. Best

All states except WV, HI, AK, LA

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For more information and a quote, please call: Gene Bohen Commercial Insurance Direct: 800-253-2214 Email: gbohen@firstam.com COMMERCIAL MESSAGE

Š2017 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF

FAPCIA - 01/2017

First American Property & Casualty Insurance Agency makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American and the eagle logo are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates. Information provided on this brochure does not alter the terms and conditions of our policies. Please read the policy for a complete description of coverage.

First American Title | Big Blue Review | 2017 - Issue 1

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