The Ohio General Assembly and Governor John Kasich recently enacted Senate Bill No. 257, which is intended, among other things, to revise and modernize Ohio laws governing title to real property, specifically O.R.C. § 5301.07. The new law, effective on April 6, 2017, creates a rebuttable presumption that a recorded real property instrument is valid, enforceable and effective, and reduces from twenty-one years to four years, the time period for curing certain defects in instruments such as deeds, mortgages and oil and gas leases.
Changes to Ohio Title Law
The new law makes several changes to O.R.C. § 5301.07, but the most notable changes include the following:
Creates a rebuttable presumption of validity: So long as a signed and acknowledged real property instrument is delivered to and accepted by the county recorder, the law creates a rebuttable presumption that the instrument conveys, encumbers, or is enforceable against the person who executed the instrument. In other words, the otherwise defective instrument is presumed to be as valid and enforceable as if it contained no defects. This presumption can be rebutted at any time by clear and convincing evidence of fraud, undue influence, duress, forgery, incompetency, or incapacity.
Affects only “real property instruments”: It should be noted that this law applies only to a “real property instrument”, which is defined as a deed, mortgage, installment contract, lease, memorandum of trust, power of attorney, or any instrument accepted by the county recorder under O.R.C. § 317.08. Moreover, the law’s rebuttable presumption provision (see below) appears to apply only to instruments that describe real property.
Expands the list of defects that can be cured: The new law removes the limitation that only the three specific defects listed in the prior version of O.R.C. § 5301.07 could be automatically cured. Instead, it states that any defect in the making, execution, or acknowledgment of an instrument may be cured. The new law does not specifically define a “defect”, but instead includes the following examples of curable defects: (i) the instrument was not property witnessed; (ii) the instrument contained no certificate of acknowledgment; (iii) the certificate of acknowledgement is defective in any respect; and (iv) the name of the person with an interest in real property does not appear in the granting clause of the instrument, but the person signed the instrument without limitation. Importantly, the new law explicitly states that defects may include, but are not limited to, these enumerated examples.
Reduces the previous 21-year requirement: The new law reduces the previous 21-year requirement to four years after the recording date for the instrument, after which the defect will be automatically cured by operation of law and made effective in all respects as if it never contained the defect. Thus, under the new law, if a party obtained title to property through an instrument that contained any defect, then that party’s interest in the property would be subject to challenge on the basis of that defect for only four years, thereby significantly reducing the duration of legal exposure.
Applies retroactively: The new law states that is has a retroactive effect to the fullest extent that the Ohio Constitution permits.
Does not interfere with obligations in several other Ohio statues: Finally, the new law provides that nothing in the revised statute shall discharge the obligation to comply with all provisions of the Marketable Title Act, the Dormant Mineral Act, and O.R.C. § 5301.332, which is the statute providing for the forfeiture and cancellation of natural gas and oil leases.
How the New Changes Will Affect Oil and Gas Development in Ohio
In general, the changes to O.R.C. § 5301.07 will decrease the curative requirements that oil and gas developers will need to satisfy to cure defects in a property’s chain of title prior to beginning operations.
More specifically, this new law will likely cause a sharp decline in the number of lawsuits that challenge the validity of oil and gas leases that contain a defective certificate of acknowledgement. As noted above, an oil and gas lease would be classified as a “real property instrument” under the new law, which means that an oil and gas lease with a defective certificate of acknowledgement will be presumed to be valid and enforceable, despite the defect, unless there is clear and convincing evidence of fraud, undue influence, duress, forgery, incompetency, or incapacity. Moreover, the defective certificate of acknowledgement will be automatically cured by operation of law after four years from the recording date of the oil and gas lease.
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