It was updated to better reflect the normal flow of a transaction. The form is now intended to be used first by the seller, not the buyer. It is designed for the seller to complete it and make it available to potential buyers to review (often in the MLS), as you would with Seller’s Property Disclosure Statement. This disclosure by the seller allows the buyer to know whether the seller intends to convey some or all of the oil, gas and mineral rights to the buyer in the transaction. This form does not need to be used if the seller is conveying these rights.

The new form can be used immediately. Using the previous version is of the form is acceptable if you have some left in your office. If you access your forms electronically, the new form will be the only one available. We have created Guidelines for Use, which can be found here (PAR login required).

The oil, gas and mineral rights language has been updated in the Agreement of Sale to avoid statements in the Agreement conflicting with the OGM Disclosure and Addendum. The new language in the Agreement relies on the OGM Disclosure and Addendum to indicate the status of these rights, avoiding any potential confusion. A more thorough explanation can be found in the OGM frequently asked questions sheet on the Oil and Gas Forms page of the PAR web site.

Brett Woodburn, Esq.

Once upon a time, not so very long ago, there was a boom in the real estate market.  While the overall real estate market has cooled, there is one facet of real estate that is still booming – gas.  Or more specifically, the conveyance and leasing of gas and oil rights in the parts of Pennsylvania that overlay the Marcellus Shale Shelf.

Though the practice is regionalized, real estate brokers have been preparing deeds from time in memoriam.  In fact, the Pennsylvania Supreme Court recognized (in 1934) that, “there can be no objection to the preparation of deeds…by such [real estate] brokers…”  To many, drafting deeds is (generally) a straightforward process in which the drafter merely copies the language from the prior deed. Now comes the gas boom… If the seller wants to reserve (or except) the gas and oil rights to himself, then all the drafter has to do is add a sentence or two reserving (or excepting) the oil and gas rights.  Right?

Not so fast.

Before the 20th Century, the law recognized three “kingdoms” — animal, vegetable, mineral.  In those days, it was understood that language reserving ‘mineral rights’ included any attendant gas and oil rights.  However, in 1882, the Pennsylvania Supreme Court dramatically altered the law when it held that a reservation or exception of “minerals” in a deed reserving that did not specifically mention or include natural gas and oil rights created a rebuttable presumption that the reservation or exception of the mineral rights did not include natural gas or oil. 

This remarkable change in what had been the established law for many decades came to be known as the “Dunham Rule”. In 1960, the Pennsylvania Supreme Court refined the Dunham Rule by stating that rebutting the presumption that natural gas or oil was not included in a reservation of mineral rights required the parties to the conveyance to show clear and convincing evidence that the reservation of “minerals” was intended to include gas and oil.

If this has been the rule for over a century, why is it suddenly making headlines?

On September 17, 2011, the Pennsylvania Superior Court decided that they needed to have additional evidence to determine whether the scope of a reservation of mineral rights included Marcellus Shale and thus the Marcellus Shale gas.  How can such an argument survive?  In 1983, the legal landscape shifted again when the Pennsylvania Supreme Court was asked to decide a dispute between two parties that owned the distinct mineral rights on the same parcel of land.  In determining which party owned the coal bed gas at issue, the Pennsylvania Supreme Court learned that coal contains certain beds of gas that can only be extracted by a process known as “hydrofracturing”, a process by which water is pumped under extreme pressure into the vein to fracture the coal and release the gas. 

The Supreme Court determined that the gas that rests within the coal is owned by the individual who owns the coal rights, while the gas that has seeped into the surrounding property is owned by the individual who owns that land or the attendant gas rights.  Today, certain owners of mineral rights are arguing that Marcellus Shale gas is akin to coal bed gas since the Marcellus Shale gas can also only be extracted by hydrofracturing.

The Pennsylvania Superior Court discovered that no court in Pennsylvaniahas decided this issue.  As such, it returned the case to the trial court for expert testimony to offer opinions as to whether Marcellus Shale is a mineral, whether Marcellus Shale gas is of the type of conventional natural gas that would fall under the Dunham Rule or if Marcellus Shale gas is similar to coal bed gas so that whomever owns the shale owns the gas.  Individuals involved with real estate and oil and gas rights are watching this decision very closely.  Once the trial court renders its decision, it will almost certainly be appealed back to the Superior Court. 

It may be some time before we have any clear guidance from an appellate court as to where Marcellus Shale and Marcellus Shale gas rights may pass, particularly when excepting or reserving those rights.  For those of you real estate licensees who are also drafting deeds, reservations and exceptions of rights in deeds and reservations and exceptions of rights in agreements of sale, proceed with extreme caution. What if the agreement you prepare or the deed you draft doesn’t meet the parties’ expectations regarding the retention or conveyance of the Marcellus Shale gas rights?

Though the timeline for a suit under the disclosure law had passed for that transaction, it’s worth reviewing some flood-related issues regarding the Seller’s Property Disclosure Statement.

Many of the questions ask whether sellers are “aware of any” information regarding a certain issue. The word “any” means exactly what it says. If sellers know that their property last flooded in 1972, it should be disclosed just as if the flooding occurred last year or last week.

Be sure to fully explain the circumstances behind any flooding damage (if it only happened once, you can say so), and even more importantly, take the time to explain any remediation efforts (cleanup and/or repairs) that were taken.

The Real Estate Seller Disclosure Law requires that sellers inform buyers when the disclosures are “rendered inaccurate prior to final settlement as a result of any act, occurrence or agreement.” If a home was flooded or otherwise damaged after sellers originally filled out their disclosure form, they need to go back and amend the form to reflect the new reality.

There are 10 exceptions to the seller disclosure law (conveniently found in the Notices of the PAR disclosure form and the Agreement of Sale), but none of the exceptions relate to sellers who do not currently occupy the property. Even if the sellers have physically moved out of the property (which would be disclosed in Paragraph 2), they still need to report information they’re aware of. For example, if the property has been vacant, but sellers have been told by a neighbor, their agent or a remediation company about damage to the property, that damage must be disclosed.

Remember both the listing agent and buyer agent both have responsibilities related to the disclosure form. First and foremost, if the listing agent is aware of an issue that requires disclosure, the agent has to disclose it even if the seller will not. In short, if your seller refuses to disclose something covered by the law, you’ll either need to disclose it yourself or send the client out to find another agent.

Just as importantly, remember that agents on both sides of the transaction have a general fiduciary responsibility to ensure that their clients understand the information in the form. On the seller’s side, agents should help explain these issues to their clients, and should review the form with the seller to ensure that the disclosures appear to have been done correctly. On the buyer’s side, agents should be sure that their clients truly understand not just the information in the form, but its impact on the transaction. At the end of the day, agents will be better protected by being very thorough with clients on both sides of the transaction.

In filling out and reviewing the Seller’s Property Disclosure Statement, most agents will gravitate to the flooding and water infiltration questions in Paragraphs 4, 6 and 16.  But remember that there are multiple sections with questions that might apply to damage caused by recent storms.  For example:

• Paragraph 3
  – Roof: The winds associated with Hurricane Irene may have caused roof damage, and the sheer amount of rain from those storms may have caused water leakage that had never happened before.
• Paragraph 6
  – Structural Items: Remember that “any past or present water leakage” covers more than basements.  If the storm caused water to come in under a side door or through poorly sealed windows, that should be disclosed.
• Paragraph 7
  – Additions/Alterations: At a minimum, seller should use this section to disclose any work that required local building permits.  Recovery work may need to be disclosed in this section if it rose to that level, and sellers might choose to list other remediation efforts simply to demonstrate the efforts they put into remediation.
• Paragraph 8
  – Water Supply: Experts have advised that heavy rains and flooding may cause well water contamination. If sellers have recently tested the water those results should be disclosed.
• Paragraph 9
  – Sewage System: Though perhaps not common, septic systems can sometimes be damaged in flood conditions. If sellers notice a drop in performance, or have had the system serviced because of flood conditions, be sure to disclose the circumstances.
• Paragraphs 11-13
  –Water Heating, Air Conditioning and Heating: Various elements of the home’s systems – hot water heaters, compressors, air handlers, etc., may have been affected by the flooding. Disclose the extent of exposure, and whether any inspections or repairs were done.
• Paragraph 14
  – Electrical System: In many homes the electrical box was partially submerged. Sellers of those properties should add that to the disclosure, and should also note whether the box was inspected (which was likely required by the municipality and/or power company).
• Paragraph 17
  – Hazardous Substances and Environmental Issues:  Most homeowners who experienced flooding will be washing the flooded areas with a bleach solution, and may be removing wood/paper/drywall and similar materials.  Some will have air quality testing performed, and even those that don’t are probably on the lookout for mold in the flooded areas. Seller in these circumstances should use the most questions in this paragraph.
• Paragraph 19
  – Miscellaneous:  This paragraph contains a question about insurance claims. If a seller has filed a flood insurance claim, it should be disclosed.

This sale is the first step in PAR’s process of moving to an exclusively electronic forms delivery method. As the inventories of our less popular forms begin to dwindle or when we will be updating the content of a form, we will offer special deals like this one to give you the opportunity to stock up on certain forms before they are gone. After the completion of each sale, the forms will available only electronically.  You can visit the Standard Forms page of the PAR website to learn more about PAR’s electronic forms  vendors.

We are offering 40 percent off of three forms:

• Agreement of Sale for Vacant Land (ASVL)

• Agreement of Sale for New Construction (ASNC)

• Agreement of Sale for Mobile/Manufactured Homes (ASMH)

Order online or by calling 800-555-3390 by September 6^th. The forms will no longer be available in print at the end of this sale.

Recent changes to the Agreement of Sale were prompted by best practices and legislation; however, Realtors® could find them useful given the current market conditions.

The first change to PAR’s Agreement of Sale is the addition of a new paragraph 9 called Change in Buyer’s Financial Status. This new language requires a buyer to inform a seller if the buyer’s financial status has changed in any way that would affect the buyer’s ability to purchase the property.

Some of the items that would be disclosed include:

• A change in employment
• Loss of sale of buyer’s home
• A new financial obligation
• A judgment against the buyer.

The addition of this new paragraph also changed the paragraph numbers on all subsequent paragraphs in the Agreement.

The second change is the addition of private transfer fee (PTF) language to the end of Title, Surveys and Costs paragraph (now paragraph 16). A private transfer fee is paid to a private (non-government) person or entity when a property is sold or transferred. The paragraph assumes that the property is not subject to a PTF obligation unless you indicate otherwise. If the property is subject to a fee obligation, the Private Transfer Fee Addendum to Agreement of Sale (PAR Form PTF) should be completed and attached. While very few PTF obligations exist, this language was added in response to new legislation that PAR worked to pass this year that requires any Private Transfer Fee obligations to be in laid out in an agreement of sale in order to transfer.

These changes led to a new revision date (at the bottom of each page) and copyright (bottom right on the first page) on the most recent version of the Agreement. The 1/10 date remains below the copyright on the front page to indicate the date of the last complete overhaul of the form.

As written, the MARS rules state that providers offering mortgage assistance relief services, including mortgage modification and short sale assistance, must make several disclosures to consumers and are prohibited from taking any advance fees in those transactions. These rules were created to deal with certain unscrupulous practices that had developed around short sales and mortgage modifications but clearly didn’t take into account the practical aspects of legitimate real estate transactions. 

NAR has been working hard to get some changes from the FTC but when we last reported on this issue, the best they had gotten was an unofficial notice that the FTC likely wouldn’t enforce certain provisions against brokers and agents. This latest release now makes it official that most of the rules will not apply to real estate licensees.

This means that licensees generally do not need to make any of the disclosures in the rules, and that they are no longer prohibited from accepting advance fees.

BUT, there are two major caveats to this new exemption. First, it applies only to licensees involved in short sales, but not to those involved in other MARS services such as mortgage modifications. Simply put, the MARS rules don’t apply if you’re only helping with a short sale, but they do apply if you’re negotiating a modification or some other relief service that isn’t just a short sale.

Second, all rules against misrepresentations still apply. So while you don’t have to provide the disclosures when you’re working in a short sale, you still cannot misrepresent “any material aspect” of the services, such as the likelihood of success, the costs or the time involved in the process. 

PAR will maintain its existing MARS forms for those members who find themselves involved in MARS transactions other than short sales, so you can comply with those rules. It is likely that lenders and other related service providers may not yet be aware of this policy change.  You are encouraged to provide copies of the FTC policy to those providers, but if they insist on compliance you could use the MARS forms even though you may not be legally required to do so.

• Settlement of Other Property Contingency makes a transaction contingent on settlement of Buyer’s property where Buyer has an Agreement to sell his current property but hasn’t yet closed.
• Sale & Settlement of Other Property Contingency makes an Agreement of Sale contingent on Buyer selling Buyer’s property and gives Seller an opportunity to approve offers Buyer gets on Buyer’s property.
• Sale & Settlement of Other Property Contingency (with Right to Continue Marketing) provides Seller the right to continue marketing property after accepting an offer contingent on sale of Buyer’s home. The first offer automatically terminates upon acceptance of a second offer.
• Seller’s Reply to Proposed Agreement of Sale for-Buyer’s Property is used with sale and settlement addenda to reply to offers received by Buyer for Buyer’s property or to financial proof that the buyer can proceed without with sale and settlement of buyer’s property.

One new form has also been created and released:

• Sale & Settlement of Other Property Contingency (with Right to Continue Marketing and Timed Kickout) (SSPTKO) provides the selller the right to continue marketing property after accepting an offer contingent on sale of Buyer’s home. Buyer has opportunity to show buyer’s ability to proceed within a given timeframe.

• Listing Contract used for the exclusive right to sell residential property. Updates to the form include changes to fee, designated agency and deposits language.
• Buyer Agency Contract satisfies the Real Estate Licensing and Registration Act (RELRA) requirements when working with buyers as a buyer’s agent. The form updates include changes to fee, designated agency and deposits language.
• Non-Exclusive Buyer Agency Contract is an alternative to the exclusive Buyer Agency Contract and can be used as a non-exclusive buyer agency contract, or as a memorandum of the terms of an oral agreement. Updates include changes to designated agency and deposits language.
• Broker’s Fee Agreement is used when working as a buyer agent or a transaction licensee in a For-Sale-By-Owner transaction. The updates include changes to fee and notice language.

Two new forms have also been created and released:

• Non-Representation Acknowledgement (NRA) allows a buyer to acknowledge that the buyer is not represented by a broker.
• Transaction Licensee Contract (TLC) establishes relationship, fees and responsibilities when working as a transaction licensee for both the seller and buyer.

I’ll be making visits to local associations throughout the state to explain the changes to the new forms. Let your local association know if you would like to have a presentation in your area.

• Listing Contract used for the exclusive right to sell residential property. Updates to the form include changes to fee, designated agency and deposits language. 
• Buyer Agency Contract satisfies the Real Estate Licensing and Registration Act (RELRA) requirements when working with buyers as a buyer’s agent. The form updates include changes to fee, designated agency and deposits language. 
• Non-Exclusive Buyer Agency Contract is an alternative to the exclusive Buyer Agency Contract and can be used as a non-exclusive buyer agency contract, or as a memorandum of the terms of an oral agreement. Updates include changes to designated agency and deposits language. 
• Broker’s Fee Agreement is used when working as a Buyer Agent or a Transaction Licensee in a For Sale By Owner transaction. The updates include changes to fee and notice language.

Two new forms have also been created:

• Non-Representation Acknowledgement (NRA) allows a buyer to acknowledge that the buyer is not represented by a broker.
• Transaction Licensee Contract (TLC) establishes relationship, fees and responsibilities when working as a Transaction Licensee for both the seller and buyer.

I’ll be making visits to local associations throughout the state to explain the changes to the new forms. Check with your local to see if something’s scheduled near you.