7/2/2015. Water Rights. Who Owns the Water in the State Of Montana? A Bit of History.

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1 Water Rights Who Owns the Water in the State Of Montana? All surface, underground, flood, and atmospheric waters within the boundaries of the state are the property of the state for the use of its people... (Article IX, section 3(3) Constitution of the State of Montana) Water rights holders do not own the water itself. Instead, they possess a right to use the water, within state guidelines. Accordingly, Montana law notes: [a] water right means the right to use water... (section , MCA) A Bit of History. Prior to 1973 Montana was solely an appropriate state. First in time of use, first in right to the water. If the parties did not agree on who was entitled to water they went to the District Court and asked that their rights to the water be adjudicated. The Court entered a decree setting forth everyone s priorities relative to water from a particular stream or water source. These were then referred to as decreed rights. 1

2 After 1973 All persons in the state who claimed an entitlement to use water were asked to file claims with the Department of Natural Resources and Conservation (DNRC). DNRC would then coordinate the adjudication of those claims so that all claims within the state would become permit authorizations. By 1983 over 200,000 claims had been filed. It was estimated that it would take another years to complete the adjudication process due to a lack of staff and funding. Legislature allocated 25 million dollars to the adjudication effort and enacted legislation establishing water rights transfer fees. Montana Water Rights Act 1979 the legislature passed a law that directed the state to adjudicate not one basin at a time, but the entire state simultaneously. Established the Montana Water Court located in Bozeman, Montana and the Montana Reserved Water Rights Compact Commission. This entity is responsible for negotiating on behalf of the state with the federal and tribal entities to quantify the federal and tribal reserved water rights. The Adjudication Process Claims should have been filed by April 30, 1982 or there is a presumption of abandonment. DNRC staff investigates claims for a given source of water such as a stream. Looks at aerial photos of area to determine irrigation patterns and history. Staff will also conduct interviews and make onsite inspection of points of use and points of diversion. This information is provided to the water court. A Preliminary decree is entered by the water court and is made available to all claimants involved 2

3 The Adjudication Process When all issues have been resolved the Water Court issues a final decree. The decree contains: Flow rate Priority date Beneficial use Time and place of use Source of water; and place and means of diversion (section (6), MCA). If you wish further information as to the current status of the water rights adjudication project in the state of Montana see: dnrc.mt.gov/wrd/water_rts/adjudication Water Rights Filed Claims Adjudication of claim By Court decree or Water rights evidenced by filed claims Unfiled Claims domestic wells less than 35 gallons per minute. still have priority depending on development date. Share rights. Canals, ditch companies, lakes, etc. 3

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5 Buy Sell Agreement Section (7) MCA provides that any written agreement to transfer land must contain the following disclosure: "WATER RIGHT OWNERSHIP UPDATE DISCLOSURE: By Montana law, failure of the parties at closing or transfer of real property to pay the required fee to the Montana Department of Natural Resources and Conservation for updating water right ownership may result in the transferee of the property being subject to a penalty. Additionally, in the case of water rights being exempted, severed, or divided, the failure of the parties to comply with section , MCA, could result in a penalty against the transferee and rejection of the deed for recording." MAR Buy Sell Language Water: All water, including surface water or ground water, any legal entitlement to water, including statements of claim, certificates of water rights, permits to appropriate, exempt existing rights, decreed basins or any ditches, ditch rights, or ditch easements appurtenant to and/or used in connection with the property are included with the property, except 5

6 Closing Buyer agents : What is your buyer getting? MAR Acknowledgement of water rights information form; Does a buyer s agent have any obligation to verify water rights? Can you look to the preliminary title report for information? Exception no. 5 of Standard form title commitment: (c) water rights, claims, or title to water, whether or not (they) are shown of public record Closing Who is going to prepare transfer documents? Who will pay transfer fee(s)? Who will tender fees and necessary documents to DNRC? Federal Reserved and Indian Reserved Water Rights Montana's Reserved Water Rights Compact Commission (RWRCC) is authorized to negotiate settlements with federal agencies and Indian tribes claiming federal reserved water rights within the State of Montana. The State and most of the Tribes have entered into agreements regarding reserved water. As of June, 2013, agreements were in place with the Charles M. Russell National Wildlife Refuge, and the Upper Missouri River Breaks National Monument. The proposed agreement with the Confederated Salish and Kootenai Tribes has not been finalized. 6

7 Water Rights Reservation The compact with the Confederated Salish and Kootenai Tribes of the Flathead Reservation was approved by the RWRCC but failed to win approval of the 2013 Legislature (HB 629). A bill to extend the adjudication filing deadline (SB 265) was vetoed by Governor Bullock. DRNC s website explanation. Water rights claims are being taken by DNRC and held. What should real estate licensees disclose relative to water rights in this area? Status of Title to Indian Lands Trust lands being conveyed by Patent from Federal Government or Via deed to restricted lands. 25 U.S.C. 483 states: The Secretary of the Interior, or his duly authorized representative, is authorized in his discretion, and upon application of the Indian owners, to issue patents in fee, to remove restrictions against alienation, and to approve conveyances, with respect to lands or interests in lands held by individual Indians under the provisions of the Act of June 18, 1934 (48 Stat. 984) [25 U.S.C. 461 et seq.], or the Act of June 26, 1936 (49 Stat. 1967) [25 U.S.C. 501 et seq.]. Status of Title to Indian Lands Opinion letter coming from Federal Government What is standard for real estate licensee? Will the title company insure your transaction? One will but most will not All of them will None of them will. Don t worry Be Happy! 7

8 Short Sales Definition: A situation where the owner/borrower owes more on the loan(s) than the properties fair market value, but wishes to sell and asks the lender to discount the remaining balance of the loan. U.S. Treasury Department s Supplemental Directive 09 09: Other sources of information. Fannie Mae Short Sales content/uploads/2012/12/standard Short Sale Highlights.pdf Making Homes Affordable bringing it all together. content/uploads/2012/12/mha_webinar.pdf Fannie Mae site redone as of early June Listing a short sale Two different paths: 90+ days delinquent and has a FICO score less than 620. No documents, hardship or contribution required, in this case. OR A demonstrated hardship that can be documented and detailed in the Borrower Response Package. Fannie Mae Short Sales Check to see if the loan is covered by Fannie Mae Obtain a recommended listing price FM will obtain an appraisal in addition to BPO s No more weight given to appraisal than to BPO Real test for either is how close to the subject property are they in both distance and time Fannie Mae wants you to register your offer FM will coordinate with the servicer to expedite the review process $3,000 relocation allowance to borrower 6% commission allowed to agent Normal and customary closing costs 8

9 Fannie Mae Short Sales $6,000 available to take out second position liens Second position lienholders must agree to release borrower from further obligation on debt. FM may ask borrower to sign a note for part of the balance owed on first. How does this work in Montana? What is not acceptable: No fees to third parties to negotiate a short sale No real estate commissions or fees to homeowner No flipping time restriction on transfer No pocket listings No agreements to rent back, etc. Renters knowyouroptions.com (90 days) FANNIE Short Sales Lender will accept offer from buyer, but will only do so if owner/borrower signs a promissory note for the amount of the loan balance the lender is discounting. Example: loan balance $300,000. Offer is $250,000. Lender wants owner/borrower to sign promissory note for $50,000 payable in 5 years. You are listing agent attempting to assist your owner/borrower in completing a short sale. Should you advise them to sign the note? Deeds In Lieu Of Foreclosure Definition: owner/borrower is willing to deed property to lender in lieu of the lender completing a foreclosure. Title must be clear or other encumbrances must release. If lender took property back subject to junior encumbrances, the junior encumbrances would now be superior to lender s interest. Why would owner do this? Less publicity. Notice of foreclosure sale is not posted on property, Notice of trustee s sale is not published in the newspaper for three weeks. Some believe it is better for your credit rating???? 9

10 Seller Financing Contracts for Deed Trust Indentures (deeds of Trust) Mortgages Trust Indentures Title passes to buyer at time of closing. Buyer has given seller (or lender) a promissory note for balance of obligation. Obligation to pay is evidenced by Promissory Note Note by itself is unsecured debt Trust Indenture is security agreement tying obligation to pay note to land given as guarantee. Trust indenture is three way agreement Land is pledged to a Trustee Attorney authorized to practice law in the state of Montana Bank, Savings & Loan or other lender authorized to do business in state of Montana A title company authorized to do business in Montana. Trust Indentures Person given Trust Indenture is the GRANTOR Person or entity who is entitled to payments is the Beneficiary. What you would expect to see at closing of a trust indenture transaction: Escrow {Bank or Title Company} Trust Indenture Promissory Note Request for Reconveyance 10

11 Trust Indentures Remember can only be used on properties 40 acres or less. Foreclosure: Trustee s sale 120 day minimum time (from recording of Notice of Trustee s Sale) Borrower has the right to cure default by bringing payments current at any time prior to time of sale (must also pay late fees and costs of foreclosure to that point). If this is done, borrower is entitled to continue on with regular payments. Once sale is held, borrower has 10 days in which to vacate the property. Note this is not a time period for the borrower to redeem the property. Cash for keys frequently available to borrower Note federal law for renters 90 days. Back to Seller Financing options: Mortgages Two party agreements used to guarantee the payment of a promissory note. As with Trust Indenture, title passes from seller to buyer at time of closing. Promissory note given for remainder of obligation Person giving the mortgage is MORTGAGOR Person entitled to payment and holding mortgage is MORTGAGEE. Documents At Closing Of A Mortgage Transaction Escrow agreement Promissory note Mortgage Satisfaction of Mortgage 11

12 Mortgages Foreclosure: Requires that a lawsuit be filed in the county where the property is located asking the Court to order that the property be sold at sheriff s sale. Even if the borrower does not contest, this can take 90 days or longer to obtain a decree of foreclosure. At sheriff s sale property is sold to highest bidder. A sheriff s certificate of sale is issued to buyer. If borrower is occupying the property as his or her principal residence, they are entitled to remain on property for one year from the date of sale. No need to pay taxes Not required to pay insurance Not required to maintain property. Just pay utilities to keep the lights on and the heat going. Mortgages Foreclosure: During foreclosure proceedings, borrower does not have a right to cure by bringing payments current. Must pay off entire debt. Even if borrower is not occupying property as principal residence, they have one year in which to get the property back by paying off loan, costs of foreclosure and interest on money from date of sale. How salable is property during this one year right of redemption? Back to Seller Financing Options: Contract For Deed Title DOES NOT pass at time of closing. Contractual arrangement between seller and buyer. Seller accepts down payment and agrees that at such time as the buyer completes all payment obligation seller will convey title to property to buyer. Issues of concern to buyer: Where can I find the seller 30 years from now when I finish paying for land? What about tax liens or judgments against the seller during the term of the contract? 12

13 Contract For Deed Issues of concern for the seller: What if buyer defaults. How do I get rid of their interest? What you should expect to see at closing of a contract for deed transaction: Escrow {Bank or Title Company} Contract For Deed Warranty Deed (seller to Buyers) Realty Transfer Certificate Quit Claim Deed (buyers to Sellers) Realty Transfer Certificate Contract for Deed Defaulting a buyer under a contract for deed. Seller gives buyer a written notice of default. Typically a 30 day time to cure the defect If not done, seller takes the property back, keeps the down payment, all payments made during contract term and gets property back. Wilsall case. So what would you recommend for a seller? Detitling Mobile Homes See section MCA: For units newer than 1977 Complete MV 72 form at County Clerk and Recorder Surrender title or manufacturers statement of origin. Unit is now part of real property Can be retitled In order to permit sale and purchase of a newer unit. 13

14 Mass Listing Agreements Obligation of licensee to determine who is the owner of the property at the time the listing is taken. ARM, e. Obligation of licensees to not misrepresent the availability of property. ARM, h (i). MLS violation Internet Companies Internet companies soliciting for listing agent to assist Sellers in marketing their homes Putting properties in the MLS Who pays the commission? Coming Soon To An MLS Near You! Flyers or blasts advising other agents of a property that you expect to list in the near future. Specific address or property information that permits the recipient to identify the property is a violation of licensing law: Section (2) (a) of the Montana Code Annotated states: (2) (a) It is unlawful for a broker or salesperson to openly advertise property belonging to others, whether by means of printed material, radio, television, or display or by other means, unless the broker or salesperson has a signed listing agreement from the owner of the property. The listing agreement must be valid as of the date of advertisement. 14

15 Coming Soon To An MLS Near You! However, it is not a licensing violation to announce in general terms that you intend to have a property listed. For example: I expect to have a 3 bedroom, 2 bath, 2,400 Sq, Ft. home in in the South Hills area listed next week. What is key? Cannot identify the exact property. But are you really home free? An agent in another office calls you and says they have a buyer and the buyer wants to see the property right away. Now where are you? Pocket Listings Definition: A pocket listing is where an agent is aware that an owner would like to sell their property but is not willing to sign a listing agreement. Agent cannot put property on the MLS nor advertise ( (2) (a) MCA). Agent keeps information to themselves and if they run across a buyer will attempt to show property and or sell it. Pocket listings are not in the best interests of the consumer as the property is not getting the exposure that the owner may think it is. 15