In tough economic times such as these, a letter like this in the mail provides welcome news:
I am with a company that helps others find lost property. This is an expensive and time consuming undertaking and it requires a staff of many professionals including attorneys and title searchers. To make this an economically feasible endeavor, my company takes a fee from the property recovered. This enables my company to keep doing business and avoids any out of pocket expenses by people like you.
I believe you have claims to minerals in Arkansas. I would like the opportunity to discuss this with you at your earliest convenience. Please give me a call at 555-555-5555.
John Heir Finder
The prospect of easy and needed money with no strings attached is enough to entice anyone to at least make the call. One who makes the call might ask “what exactly do I own and how much money can I expect.” Almost uniformly, the answer will be “now if I told you that, you wouldn’t need me.” At this point, a savvy person would simply get on the internet and figure out the mystery for themselves. A Google search would lead that person to the Arkansas Oil and Gas Commission (AOGC). A call to the AOGC would lead that person to the oil and gas producer escrow account records maintained by the AOGC. A review of those records, a little family research on the phone and internet, and viola! The savvy person discovers their great uncle Leo who lived in Arkansas to whom an Oil and Gas Company owes $100,000. A call to the Oil and Gas Company reveals that Leo owned 80 acres of minerals. The savvy property owner then hires an attorney, cures his title with an affidavit or probate, collects the $100,000, and enjoys the ownership of great uncle Leo’s 80 mineral acres in the Fayetteville Shale.
Not everyone, however, is savvy. Most will regard the money found as money they didn’t have and agree to whatever the heir finder proposes as what might seem to be a nominal reward for their trouble. In many cases, this is justifiable because most people don’t understand the esoteric world of oil, gas, and mineral ownership. The solicited follow up phone conversation leads the unenlightened property owner to accept the terms of the agreement offered to them. Many times, the heir finder represents the property is “a hassle” or that proving the claim will be “difficult” to sway the property owner to agree. A few days after the telephone conversation, a contract arrives in the mail with a quitclaim deed for some portion (usually half) of the minerals. Only after execution and return of the contract and deed, the property owner learns from the heir finder that the property owner’s great uncle Leo owned 80 mineral acres that was under production with $100,000 in royalties and bonus owed at the time of the agreement. To the property owner’s shock, they may learn the heir finder simply trolled the records of the AOGC and located them using free internet resources such as the Social Security Death Index or FamilySearch.org, putting nearly zero time and effort for the fee charged by the finder/locator. Fifty thousand for a few hours of effort is fantastic work if you can get it, but it smacks of injustice. Is there any recourse for the property owner?
The aggrieved property owner’s first recourse is the Uniform Unclaimed Property Act (UUPA). Arkansas is one of many states that adopted the Act, but Arkansas is unique in that it adopted the Act in essentially the same form as suggested by the Uniform Commission on State Laws. The UUPA is found at Ark. Code. Ann. § 18-28-201 et. seq. The UUPA limits compensation for property covered by the to 10% of the property’s value and places other restrictions on the manner of making the contract. More importantly, this non-attenuated version of UUPA includes strong protections for property owners who are solicited for the location of actively producing mineral interests. These provisions are found at Ark. Code. Ann. § 18-28-225. Under the Act, “property” is any money held by someone with a duty to do so in their ordinary course of business. Clearly, an oil and gas producer who sells gas and retains the proceeds under a pooling order of the AOGC is doing so in the ordinary course of their business. Once the order is effective and the lease bonus payable, the Act protects the property owner because there is money available from the interest, making it “property” under the Act. Any contract, “the primary purpose of which is to locate, deliver, recover, or assist in the recovery of property” that includes “mineral proceeds not then abandoned” or “a portion of the underlying minerals” is void. Under Ark. Code. Ann § 18-28-403, mineral proceeds become “abandoned” after 5 years of escrow with the producing Oil and Gas Company’s. Thus, under the fact sketch above, there is simply no valid contract between the property owner and the heir finder because the UUPA does not permit any of the compensation called for by the agreement. As of the posting date of this writing, there is probably no production from the Fayetteville Shale that qualifies as “abandoned.” The property owner should be able to set aside any mineral deeds and obtain restitution of all non-abandoned mineral proceeds paid to the heir finder. The UUPA, while untested in the Arkansas Courts, is a powerful weapon for property owners victimized by unjust heir finding contracts.
A second statutory recourse is the Deceptive Trade Practices Act codified at Ark. Code Ann. § 4-88-101 et. seq. The Act provides a cause of action against anyone who “knowingly” takes “advantage of a consumer who is reasonably unable to protect his or her interest because of…ignorance… or a similar factor.” The Act further prohibits the use of “any deception, fraud, or false pretense” and “the concealment, suppression, or omission of any material fact with intent that others rely upon the concealment, suppression, or omission.” There is also a catch all provision prohibiting “any other unconscionable, false, or deceptive act or practice in business, commerce, or trade.” A property owner may obtain full restitution and reasonable attorney’s fees under the Act. If the property owner is elderly (defined by the Act to be more than 60 years old) or disabled as defined by the act, punitive damages are available. The aforementioned provisions of UUPA are likely cognizable under the Deceptive Trade Practices Act, providing a means for a property owner to obtain reasonable attorney’s fees and possible punitive damages in addition to restitution.
An aggrieved property owner’s final avenue of relief is the common law. It is possible to rescind the contract for unilateral mistake if it is shown the heir finder engaged in misconduct. A court can entertain a claim that the contract was unconscionable. Contract-based common law remedies provide for reasonable attorney’s fees. Where the heir finder makes representations about the property based on superior knowledge, the property owner may have a claim for constructive or actual fraud, depending on the specific facts. Claims of fraud are difficult and expensive to litigate, but provide the possibility of punitive damages.
Aggrieved property owners should act quickly to preserve their rights. The real estate recording acts will protect subsequent purchasers of minerals. If the heir finder leases, mortgages, or sells the minerals to a third party, it will be nearly impossible to recover the minerals (though restitution from the heir finder is still possible). Additionally, each of the claims above have a statute of limitations of between 2 and 5 years. The longer the property owner waits, the more difficult it becomes to recover property lost under an heir finding agreement. After enough time, all claims to regain the property will become barred by limitations.
This post should also be considered by independent landmen, attorneys, and anyone else in the mineral-buying business. Most consider the practice of looking up lost heirs as shrewd business, but few are aware of the UUPA and the serious consequences of failing to make full and transparent disclosures about the property to the lost heirs of a mineral owner. Property owners with letters in hand from heir finders or lost property locators should contact an attorney prior to signing or agreeing to any heir finding or property location agreement.
The above represents the opinion of the author and not of any organization or group to which the author may belong. This material is general information, and it is not intended to create any lawyer-client relationship. Neither the transmission nor receipt of this information is an offer to extend representation by the author. Any information, opinion, and comment provided herein should not be taken as legal advice or relied upon by the reader for any purpose. The author is licensed in the state of Arkansas. Commentary on cases and law from jurisdictions where the author does not hold license to practice are for demonstrative or scholarly purposes and do not represent the author is licensed or accepts cases in the applicable jurisdiction. If you are need of legal services, you should contact a licensed attorney in your jurisdiction.