“You never own your [real property]; the government does. You’ll be paying them property tax forever.” —Robert Kiyosaki, author of Rich Dad, Poor Dad
In Bush v. Yarborough Oil & Gas, LP,12024 Tex. App. LEXIS 9148 (Tex. App.—El Paso 2024, no pet.). the Texas Eighth District Court of Appeals held that a 1948 tax foreclosure did not include a previously severed 1/2 mineral interest — even though the tax lien had attached prior to the severance. This was because the severed mineral owners had not been properly named parties to the foreclosure proceedings.
I. Background & Trial Court Proceedings
M.A. Piercy owned fee simple title to 560 acres in Reeves County. In 1937, she conveyed a 1/2 mineral interest to Thomas C. Vaughn. Between 1937 and 1948, Piercy fell delinquent on her property taxes, culminating in a tax foreclosure and sheriff’s deed to John Bush in 1951. It was undisputed that some of Piercy’s tax liens had attached prior to the 1937 mineral conveyance to Vaughn. However, neither Vaughn nor his successors were named as parties to the 1948 foreclosure proceedings. The parties in Bush v. Yarborough aligned as the successors to Vaughn (the “Vaughn Successors”) and the successors to Bush (the “Bush Successors”).
Nearly 70 years later, oil and gas wells were drilled on the land and Rosetta Resources Operating and Noble Energy, Inc. (“Rosetta/Noble”) began to pay royalties to the Bush Successors. The excluded Vaughn Successors sued Rosetta/Noble and the Bush Successors for trespass-to-try-title, breach of contract, and money had and received. At issue was whether the 1948 tax foreclosure had covered and included the outstanding 1/2 mineral interest Vaughn had acquired in 1937. The trial court held that only Piercy’s interest had been foreclosed and entered judgment against the Bush Successors. The Bush Successors appealed.
II. Scope of the Foreclosure Judgment
In its de novo review, the El Paso court of appeals first looked to the four corners of the 1948 tax judgment and deed. The judgment contained a broad definition of “the property,” but also ordered that the taxing authority only “recover of and from defendant(s) herein above named the total sum of money due for taxes . . .” (emphasis added). The sheriff’s deed also included a broad legal description, but also provided that it conveyed “all the right, title and interest of the said Mrs. M.A. Piercy, Defendant . . .”
The court found that these express provisions were inconclusive as to whether the judgment and deed were limited to Piercy’s interest or were intended to cover the entirety of the tract, including outstanding mineral interest of Vaughn. The court noted that although a sheriff’s deed cannot exceed the scope of the judgment authorizing the sale, it can theoretically convey a narrower interest. Thus, the sheriff’s deed could be found to convey less than the entire property to which a tax lien had previously attached (i.e., only the interest of Piercy).
The court next looked to “surrounding circumstances,”2Note that whether a court should allow “surrounding circumstances” and/or “extrinsic evidence” can be a thorny issue. Per the court, when the text of the judgment is “inconclusive,” it can consider surrounding facts and circumstances to “shed light on the objective meaning conveyed by the text.” To determine historical meaning, a court will generally begin with “contemporary legal and lay dictionaries.” Then it will consider historical cases and statutes. When interpreting older instruments, the court must “determine what a text could reasonably have meant to an informed but disinterested speaker at the time the text was written.” In the event of “inescapable ambiguity,” courts may consider extrinsic evidence of subjective intent. It might be argued that Texas courts, like New Mexico, are becoming more and more willing to look beyond the four corners of a document when credible evidence of surrounding circumstances is available. including the provisions of the Delinquent Tax Act of 1895. Tax liens “automatically” attach and accumulate year over year without expiration. However, foreclosure is not automatic and compels the state to have all of the necessary parties before the court. The express purpose of the Delinquent Tax Act was to ensure that foreclosures did not automatically occur upon the nonpayment of taxes but remained subject to the judicial process. The Texas Supreme Court has even stated that the purpose of the Act was to “remedy the evils” of the former method of summary tax sales, which did not provide notice or an opportunity to be heard.3Brown v. Bonougli, 232 S.W. 490, 492 (Tex. 1921). Thus, for a tax foreclosure to be effective, the proper parties must be served with process and made a part of the suit.
The court held that neither the foreclosure proceedings nor the sheriff’s deed reflected an intent that the non-joined Vaughn Successors interest was foreclosed in the tax sale. Moreover, “surrounding circumstances” (i.e., the Delinquent Tax Act) required that all necessary parties must be named in the lawsuit and served with process for their interest to be extinguished by foreclosure.
III. Limitations & Equitable Arguments
The Bush Successors further maintained that the Vaughn Successors’ title claims were barred by the statute of limitations. The Texas Tax Code provides a one-year statute of limitations for an action relating to title to property against the purchaser of the property at a tax sale.4Tex. Tax Code Ann. § 33.54. When actions are barred by limitations, the purchaser at the tax sale or the purchaser’s successor in interest has full title to the property, precluding all other claims. However, the court found this limitation does not apply to a trespass-to-try-title suit seeking to determine the scope of a tax foreclosure judgment. Because of this subtle but important distinction, the suit was not barred by limitations. Note that this distinction regarding “scope suits” first arose in the 2022 Texas Supreme Court case of Mitchell v. MAP Res., Inc.5649 S.W.3d 180 (Tex. 2022). Prior to Mitchell, the Supreme Court construed Section 33.54 as only barring suits “challenging the validity of a tax sale,” as opposed to suits merely requesting a declaration of the scope of a deed.
The Bush Successors finally argued that the Vaughn Successors have been on “constructive notice” of the tax sale for more than 70 years. Allowing them to pursue their trespass-to-try-title claim now would be against public policy. In rejecting this argument, the court observed that county title records are maintained in perpetuity. Trespass-to-try-title actions allow a record title owner to prove their ownership back to sovereignty. A property owner is on notice of prior claims reflected in their chain of title, but they are not put on notice of a deed recorded after a conveyance. Such subsequent conveyances are said to be “out of the chain of title” of the property owner.6Fitzgerald v. Le Grande, 187 S.W.2d 155, 159 (Tex. App.—El Paso 1945, no writ); Atl. Ref. Co. v. Noel, 443 S.W.2d 35, 39-40 (Tex. 1969). Here, the tax foreclosure took place after Thomas C. Vaughn acquired his interest, so he and his successors were not charged with notice. Therefore, the court reasoned, there is no reason in law or equity that the Vaughn Successors claims should be barred by limitations.
IV. Holding & Takeaway
The Yarborough court held that the Vaughn Successors’ 1/2 mineral interest was not extinguished by the tax foreclosure, even though the foreclosed tax liens attached prior to the conveyance. However, this case could have come out differently if the severed mineral owners or their successors had been named.
Yarborough serves as a reminder that you cannot jump to conclusions regarding the effect of surface tax foreclosures on severed minerals — as Rosetta and Noble did here. If there is any question regarding the scope of a tax sale, the potentially disputed portion may be eligible to be placed in suspense.
Before assuming that an outstanding interest has been extinguished by and conveyed in a tax sale, you must ensure that all statutory prerequisites, including proper notice and joinder, have been met under the laws in effect at that time. A tax foreclosure on a described parcel may be inadequate to extinguish certain outstanding interests if the owners of those interests are not properly named and afforded due process. But remember that, as Mr. Kiyosaki points out above, no real property interest, including a severed mineral interest, is beyond the reach of the tax man!
Brad represents clients in connection with upstream energy transactions, complex mineral titles, pooling issues, lease analysis, joint operating agreements, surface use issues, title curative and general oil and gas business matters.