Water Right title and the Real Estate Agent

Utah County Association of Realtors

Orem, Utah January 22, 2013
Presented by

Rod Dean, Managing Member The Water Title Guy, LLC,

Example of Water Right Title Issues

substantially the same title issues and problems as other real property.

Water rights are considered real property, they have

Title to water rights passes when documents are recorded at the local County Recorders Office, title is not always as shown on the records of the State Engineer/Utah Division of Water Rights (DWR or Division). If you are relying on title as it is shown at the Division, you are looking in the wrong place.

REPC Section 1.4 Water Service

! The Purchase Price for the Property shall
include all water rights/shares, if any, that are the legal source for Sellers current culinary water service and irrigation water service, if any, to the Property. The water rights/water shares will be conveyed or otherwise transferred to Buyer at Closing by applicable deed or legal instruments. The following water rights/water shares, if applicable, are specifically excluded from this sale: ______________.

REPC Section 1.4 Water Service

! What duty does a realtor have to review
this paragraph and make sure it is complied with? ! What if it is a sellers intent to specifically exclude the water rights but the deed is prepared with no reservation regarding water?

Conveyance of Water rights

!!When a conveyance document is silent

regarding water and if the water is appurtenant to the land, the title to the water rights passes with the land. Prior to May 4, 1998 only perfected rights passed through appurtenance.

Post 1998 Appurtenance

! All water rights except unapproved
applications pass by appurtenance unless specifically reserved in the transfer document. ! There are other exceptions that can reserve the water rights but basically if a deed is silent regarding water the water passes with the land by appurtenance.

Title Problems Example 1

In 1977, Joe Seller bought 167 acres of irrigated land. The deed was silent as to water rights, so the water right used on the land passed to Joe by appurtenance. This water right was a decreed right under the local river basin adjudication. It was used to irrigate all 167 acres, plus other acreage owned by other co-owners of the water right.

Subsequent Sales
! In July of 1990, Joe sold his entire portion of this
water right to GHI Irrigation Company and that deed was promptly recorded with the County Recorder. In 2011, an officer of the Irrigation Company found a copy of the recorded deed in the Companys files and checked on the status of the water right at DWR. He found that: !DWR listed 10 owners, including Joe Seller, but not the Irrigation Company. !The DWR printout also showed 57 water rights segregated off from Joes portion of this water right, each with a change application moving the segregated water elsewhere.

Subsequent Sales
! All of the 57 buyers got their water from Joe AFTER
he had deeded his portion of the water right to the Irrigation Company.

! Therefore, all 57 buyers got deeds from Joe for water

that he did not own at the time of the transfers.

!One of the buyers is a City, which bought 30 a.f. !Others bought 1 to 10 a.f. each. ! I was asked to sort out who owned what, when and
why.

My Findings
! I found that in 1989 and 1990 BEFORE he sold his
portion of this water right to the Irrigation Company Joe had sold five portions of his 167 acres totaling 65 acres. ! Those deeds were also silent as to water so a portion of Joes water right (about 1/3) went to the buyers of the 65 acres and was not available for sale to the Irrigation Company later in 1990. ! The 57 segregated rights, and 8 co owners of the water right, if the conveyances had been valid, would have accounted for another 1/3 of Joes water right. So, he sold the same water two or three times. ! The Irrigation Company got only about 2/3s of what they paid for and the 57 buyers got none of what they paid for.

Why
! What happened? ! Joe didnt know that his water passed to

buyers of land because deeds were silent regarding water. ! Joe looked at the Divisions database and saw his name on the water right and thought that he still owned the water right.

System Water Right Court Approval Buying/Selling Disputes Active Legislation

Prior Appropriation A water right is required for diversion of groundwater or surface water Court approval is not required for diversions of surface water or groundwater Water rights may be sold; however, changes in water right usage requires State Engineer approval State Engineer and District court Yes, and litigation

All of the water in the state belongs to the Public

The right to use the water is obtained in a number of different ways:
!!Diligence Claims
ground) (Water use prior to 1903 surface 1935

!!Application to Appropriate !!Adjudication Proceedings

What is a water right?

!! A water right gives an individual or entity the right to use a
maximum quantity of water from a specific source, at a specified point of diversion or withdrawal, for a specified use, and a specified time. other water rights in the same source.

!! Each water right also has a particular priority in relation to !! Priority is the order of ranking in which the owner of the right

may take his or her entitlement; a senior appropriator may take his or her full measure of water before a junior appropriator is permitted to take any from the same source.

!!FIRST in time is FIRST in Right

Perfected Water Rights

!!Both decreed and certificated water rights
are sometimes referred to a perfected water rights. !!Diligence claims are also perfected water rights.

Perfected Water Rights

! Established by:
! Application to Appropriate ! Adjudication Proceedings ! Diligence Claims

! Met all statutory

(water use prior to 1903-surface, 1935ground)

requirements ! Are considered real property and are transferred in the same manner as other real property ! Can be forfeited for non-use

Conveyance of Water Rights

!!Because perfected water rights are considered real
property they have substantially the same title issues and problems as other real property.

!! !!The office of record for ownership of water rights is the

county recorders office for the county or counties where the water is diverted and/or used.

!!Title to water rights passes in the county, not in the

office of the Division of Water Rights. If you are relying on title at the Division you are looking in the wrong place.

Conveyance of Water rights

!!Water rights can be deeded separately from
land.

!!Water rights can be encumbered or mortgaged

independent from land.

!!When a conveyance document is silent

regarding water and if the water is appurtenant to the land, the title to the water rights passes with the land. Prior to May 4, 1998 only perfected rights passed through appurtenance.

Post 1998 Appurtenance

! All water rights except unapproved
applications pass by appurtenance unless specifically reserved in the transfer document. ! There are other exceptions that can reserve the water rights but basically if a deed is silent regarding water the water passes with the land by appurtenance.

REPC Section 1.4 Water Service

! The Purchase Price for the Property shall
include all water rights/shares, if any, that are the legal source for Sellers current culinary water service and irrigation water service, if any, to the Property. The water rights/water shares will be conveyed or otherwise transferred to Buyer at Closing by applicable deed or legal instruments. The following water rights/water shares, if applicable, are specifically excluded from this sale: ______________.

What are water shares?

!!People may own shares of stock in an irrigation, canal or
mutual water company. Owning shares in the company gives one the right to use a certain amount of water that is provided from the company. There is usually an annual assessment charged by the company.

!!They do not own any of the underlying water right.

!!How are water shares transferred?

(The underlying water rights are owned by the irrigation company)

Water Shares
! Are treated as personal
property ! Water from shares does not transfer by appurtenance ! Transferred by surrendering shares to water company and getting new shares issued ! Transfers also require consideration of specific issues outside of those that are applicable to water right transfers

Potential Problems with Shares

! By-laws prohibit the use of the companys water
outside of service area of the Company ! Corporation doesnt really exist for a number of reasons:
! Never really a valid corporation ! Expired under the terms of the Articles of Incorporation ! Expired for failure to file reports and fees with the State ! Stockholder failed to pay the annual assessment

Water Certificates
! Bank took a Water Certificate as security
for a loan. ! Its intent was to take shares of stock in a water company ! It had a Certificate of Appropriation in its file which is akin to having a Patent to land in your file and thinking that it gives you title to the property.

Report of Water Right Conveyance

!!House Bill 184 effective May 1, 2000 now
requires that Report of Water Rights Conveyance be filed with the Division of Water Rights to update title in their records. !!In certain situations the Report may be prepared by the water right owner

Report to be prepared by licensed professionals Reports must be prepared and certified by: !!Engineers !!Land Surveyors !!Title Insurance Agents !!Attorneys

Division of Water Rights Disclaimer

Notice No agency of the State of Utah warrants or guarantees title to certain water rights. The State Engineers Office serves only as an office of public record. The water right information provided here reflects that which has been filed with the State Engineers Office by the public. If an opinion of title assurance is desired, an attorney or other qualified professional should be retained.

Additional Disclaimer
! The filing and processing of a report of
water right conveyance with the state engineer is neither an adjudication of water right ownership nor an opinion as to title or validity of the water right.

Utah
It is a truism to say that in Utah water rights are an important property interest. They are a downright obsession given the fact that most of the State being over appropriated. This over appropriation has applied pressure to rely on the older water rights. It is now necessary for anyone wanting to develop new water uses and sources (or buy, sell or transfer current ones) to acquire existing water rights by purchase.

!! Why is water right title an issue now when it wasnt 10 or 20 years ago? !! For the past twenty years Utah has gradually become closed to new appropriations. !! New markets are developing for water rights acquisitions. !! Strict administration by State Engineer. !! House Bill 184 (Report of Water Right Conveyance) !! Ownership, Ownership, Ownership !!!!!!!!

Why worry about title to water rights?

! Prior to the time that most of the state became
closed to new appropriations, you could generally solve a water right title issue by filing a new application to appropriate. ! Now, in most parts of the State, you can no longer solve the title issues by filing a new application. If you need to acquire water you have to purchase an existing water right. Title has become an important concern.

Contact information: The Water Title Guy, LLC, Visit our Website: Watertitleguy.com
Or Call

Rod Dean 1-801-300-0755 Or Email Rod Dean Rodthewaterguy@comcast.net