Co-author Rusty Tucker

Ridgefield Permian, LLC, et al. v. Diamondback E & P LLC, et al. addresses the scope of a property interest foreclosed upon by a tax suit in Reeves County, Texas. In this post we will shortcut the complicated facts and discuss the takeaways. The rules are what you need.

Royalty interests that were subject to an oil and gas lease were foreclosed upon and sold by the sheriff. The lease then terminated. Both the purchaser of the foreclosed interest (Magnolia, LLC) and the assignee (the Trust) of the former royalty owner whose interest was foreclosed upon (Albert) claimed to own the possibility of reverter * (the POR) and granted oil and gas leases.

The point

The Supreme Court of Texas has held that a POR is not taxable. The POR was not included in the property interest that was the subject of the tax foreclosure. The foreclosed interest was a royalty interest under the Meriwether lease. The POR, owned by Albert, was not derived from, part of, or attached to the foreclosed royalty interest. Therefore, the tax lien did not attach to the POR.

Also, the plain language of the tax suit judgment specifically described only the royalty interests under the Meriwether lease, and the sheriff’s deed limited the interests that were conveyed to those “foreclosed” upon in the tax suit. Thus, the royalty interest was the only interest that could possibly fit into the explicit limitations of the sheriff’s deed.

The POR could not have been foreclosed upon because there were no delinquent taxes on which a lien could attach. The POR remained attached to the surface estate, which was not foreclosed on. Albert continued to own the POR until he conveyed it to the Trust, which leased to Ridgefield. When the Meriwether lease terminated, the mineral estate reverted to the Trust. Ridgefield and its lessor the Trust prevailed over Diamondback and its lessor Magnolia.

Your musical interlude.

*The real property term of art for what the grantor owns as a future interest in a determinable fee grant; it is the grantor’s right to fee ownership in the real property reverting to him if the condition terminating the determinable fee occurs.