In Koch v. David Fam. Oil & Gas Ints. P’Ship,[1] the Court of Appeals of New Mexico held that the grantee in a deed of distribution executed by the foreign personal representative of an estate can be a bona fide purchaser in the absence of ancillary New Mexico probate proceedings.  The court further held that bona fide purchaser status may be attained through both “void” and “voidable” instruments.[2]

Background and Facts

In Koch, various parties laid claim to an overriding royalty interest (the “Koch ORRI”) in a Federal Oil and Gas Lease (the “Lease”).  The parties generally aligned as the “Koch Plaintiffs” and the “David Defendants.”  The dispute began with the divorce of Robert and Anne Koch who had acquired the Koch ORRI during their marriage as their community property.[3]

Robert and Anne Koch divorced in 1969, and as part of the divorce settlement Robert assigned to Anne a portion of the Koch ORRI (the “Koch Assignment”).[4]  Importantly, neither the Koch Assignment nor the divorce decree were filed with the Bureau of Land Management (“BLM”) or in the Eddy County Clerk’s Office.[5]

Robert died in 1975, and his will was duly probated in Colorado.  Samuel Kumagai was appointed as the Personal Representative of the Estate of Robert Koch, Deceased in Colorado, but no probate proceedings were conducted in New Mexico.  Despite this lack of ancillary probate, Mr. Kumagai executed various real property conveyances in New Mexico while settling the Estate.  Included among these conveyances was Robert Koch’s remaining portion of the Koch ORRI, which was sold to Robert W. David in 1977.  Anne died testate in 2005 still owning her portion of the Koch ORRI.[6]

In 2021, the Koch Plaintiffs[7] filed a quiet title action claiming full ownership of the Koch ORRI, including the portion assigned to Robert W. David by Mr. Kumagai.  Of primary interest here is the David Defendants’[8] assertion that Robert W. David was a bona fide purchaser for value (“BFP”) because there was nothing in the Eddy County records providing notice of Anne’s interest in the Lease.  The Koch Plaintiffs countered that Robert W. David could not qualify as a BFP because there was enough information available in the BLM and Eddy County records to put David on notice of Anne’s interest in the Lease.  Further, because no ancillary probate was opened in New Mexico, the assignment to Robert W. David was void.  Per the David Defendants, you cannot maintain BFP status from a void deed executed by a foreign personal representative.[9]

The district court considered competing motions for summary judgment and found that the assignment to Robert David was void because no ancillary probate had been opened in New Mexico.[10]  Moreover, Robert W. David could not have been a BFP because he was on “actual” notice that a Colorado personal representative did not have the authority to convey an interest in New Mexico absent ancillary probate proceedings.[11]  Robert Koch’s interest, therefore, remained “parked” in the Estate of Robert Koch, Deceased, and “[a]ll subsequent assignments [were] of no effect.”[12] This appeal followed.

Pertinent New Mexico Law

In New Mexico, as in other states, real property conveyances must be recorded with the county clerk in the county or counties where the property is located.[13] A properly recorded conveyance provides notice to third parties of the existence and contents of the instrument.[14] This is sometimes referred to as “constructive notice.”[15] A subsequent third-party who purchases property in good faith without notice of a prior unrecorded claim is known as a bona fide purchaser (“BFP”).[16] A BFP will generally hold superior title to the property or interest.[17]

The recordation of a deed of distribution typically establishes a conveyance from an estate.  A recorded deed of distribution from a properly appointed personal representative provides conclusive evidence that a distributee has succeeded to the interest of the estate.[18]  However, when a will has been probated in another state, the personal representative will not have authority to act in New Mexico – including executing a deed of distribution – until ancillary probate proceedings have been conducted and a “foreign domiciliary” personal representative named.[19]

The Court of Appeals’ Decision

The New Mexico Court of Appeals first addressed whether Robert W. David was on “actual” notice that Mr. Kumagai was only appointed to act as the Personal Representative of the Estate of Robert Koch, Deceased, in Colorado.  The New Mexico statutes do not put a duty of further inquiry on a grantee as to whether ancillary proceedings of foreign probate have been conducted in New Mexico.[20]  Because the assignor in the Koch Assignment was merely described as the “Estate of Robert Koch, Deceased, by Samuel Kumagai, Personal Representative,” Robert W. David has no way of knowing – and no specific duty to inquire – whether the Personal Representative was acting with or without the blessing of a New Mexico court.[21]

The court next turned to whether a party can qualify as a BFP when its title is obtained by an ineffective instrument such as a deed of distribution executed by a foreign personal representative.  New Mexico precedent such as State ex. rel. State Tax Comm’n v. Garcia makes it clear that void and voidable instruments can serve to convey title to a BFP. [22]  Thus, just because Robert W. David obtained his title through a deed of distribution executed by a Colorado personal representative did not mean he forfeit his status as a BFP.  The court, therefore, held that summary judgment was inappropriate in this case and remanded it to the trial court to determine whether Mr. David had “actual” knowledge about any aspect of Robert Koch’s estate proceedings and might have lost his BFP status.[23]

Conclusion & Takeaways

The concept of a “BFP” is a useful tool for settling titles and extinguishing certain competing ownership claims.  Koch holds that in the absence of actual notice of title deficiencies, a party is a BFP if he takes ownership under a duly executed and recorded deed of distribution.  This may be true even if a foreign personal representative was not admitted in New Mexico as a foreign domiciliary personal representative.  This case also serves as a reminder that summary judgment is disfavored in New Mexico.[24]

References

[1] 2024 N.M. App. Unpub. LEXIS 241.  The original, unpublished opinion was filed on May 16, 2024, at 2024 N.M. App. Unpub. LEXIS 156 was withdrawn, and this opinion was substituted in its place.  The facts have been simplified for the purposes of this article.

[2] A “void” instrument is one that is unenforceable and of no effect at its inception. A “voidable” instrument requires some further action from one of the parties to be set aside.

[3] Id. at 3-5.

[4] Id.

[5] Id. at 5-6.

[6] Id. at 6.

[7] Being the heirs of Robert and Anne Koch.  Id. at 3.

[8] Being the successors and assigns of Robert W. David.  Id. at 3-4.

[9] Id. at 7-9.

[10] Id.

[11] Id. at 9-10.

[12] Id. at 10.  Note that this and several other elements of the district court’s ruling “were not mentioned – much less requested or argued – by the parties[.]” Id.

[13] N.M. Stat. Ann. § 14-9-1.

[14] N.M. Stat. Ann. § 14-9-2. Note that there is no federal or state statute providing that the BLM records, either in Washington, D.C. or in the state offices, provide actual or constructive notice to persons acquiring interests in federal oil and gas leases.

[15] Id.  By contrast “actual” notice is present when a party has actual knowledge of the existence of a competing claim such as a physical copy of an unrecorded deed.  “Inquiry” notice exists when facts are present that would put an ordinary reasonable person a heightened duty to investigate a possible competing claim.  Both actual and inquiry notice are highly fact specific.

[16] See City of Rio Rancho v. Amrep Southwest Inc., 260 P.3d 414 (N.M. 2011).

[17] N.M. Stat. Ann. § 14-9-3.

[18] N.M. Stat. Ann. § 45-3-907–08.

[19] N.M. Stat. Ann. § 45-4-201, et seq.

[20] See 2024 N.M. App. Unpub. LEXIS 241 at 11-12.

[21] Id.

[22] 427 P.2d 230 (N.M. 1967) (discussing the difference between voidable and void instruments and holding that deeds not fraudulent on their face though cancellable by the state did not defeat a claim by a BFP). See also Jeffers v. Doel, 658 P.2d 426 (N.M. 1982) (noting that N.M. Stat. Ann. § 40-9-3 (1923, amended 1990) protects BFPs even if a conveyance was void under N.M. Stat. Ann. § 40-3-13 (1975, amended 1993)).

[23] See 2024 N.M. App. Unpub. LEXIS 241 at 15-16.

[24] Id. at 10.