314 City of Alvin v. Zindle

Thursday, September 3rd, 2015

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
 
City of Alvin v. Zindle, No. 14-08-00458-CV, 2009 WL 4573702 (Tex. App.—Houston [14th Dist.] Dec. 8, 2009, pet. denied) (mem. op.), held that a lessor under an oil and gas lease retained the surface, the right to royalty, and the possibility of reverter, all of which were subject to foreclosure of a tax lien on the surface estate, unless the royalty interest was taxed separately and not delinquent. In 1931, Zindle’s predecessor-in-interest, as lessor, executed an oil and gas lease reserving a one-eighth royalty to lessor. Zindle’s royalty interest was taxed separately from the surface estate, and Zindle was not delinquent in payment of taxes on the royalty interest. In 1991, a default judgment was entered against Zindle, authorizing the City of Alvin (“City”) to foreclose on its tax lien on the property. Following its foreclosure and sale, the City sued Zindle, claiming it owned the mineral estate.
 
The Houston Court of Appeals held that “when the lessor of the oil and gas lease encumbering Zindle’s property reserved the one-eighth royalty interest, the lessee received a fee simple determinable in all the oil and gas in place, and the lessor owned a fractional royalty interest and possibility of reverter, both of which remained unsevered from the surface estate.” The court also held, “[f]or mineral estate interests owned by the surface estate owner ‘to be taken in a tax foreclosure of the surface, those interests must have been taxed together with the surface and thus have been similarly delinquent and subject to the foreclosed tax lien.’” Because Zindle’s royalty interest was taxed separately from the surface estate and because Zindle was not delinquent in payment of taxes on that royalty interest, the royalty interest was not subject to foreclosure. The court noted that the underlying policy is that an owner of multiple properties with limited funds may elect which properties to protect from foreclosure by paying the taxes.
 
Because the possibility of reverter is a non-taxable interest, it was unsevered from the surface estate and there was no impediment to its foreclosure and sale as an interest running with the surface estate. The City acquired Zindle’s surface estate and the possibility of reverter in the mineral estate, but not Zindle’s royalty.
 
The significance of the case is the holding that an oil and gas lease does not sever the royalty interest or the possibility of reverter from the surface estate for purposes of determining the interest foreclosed for a tax delinquency on the surface. However, if the surface interest and the royalty interest are taxed separately and the taxes on the royalty interest are not delinquent, a foreclosure on the royalty interest is not authorized.