July 26, 2018
I. Checking out the water rights—How do you determine whether they’re “real”?
As water rights become more scarce, the need to conduct a thorough due diligence investigation into the water rights offered for sale separately or as part of a property transaction becomes more important. Due diligence is easier if the water rights have been adjudicated, but the vast majority of water rights in New Mexico have not been adjudicated—some have not even been permitted by the State Engineer. No water rights have been adjudicated in the Middle Valley of the Rio Grande (“Middle Valley”), and a few non-permitted or even non-declared water rights exist. Surface water rights developed before 1907 do not need a permit, nor do groundwater rights developed before the State Engineer declared and took jurisdiction over the particular groundwater basin where the wells are located. Most prudent water rights owners, however, have filed “declarations” of their surface or groundwater rights with the State Engineer’s office, which is the first stop for learning about the water rights.
A. Online source for water rights files—use with caution
The first “virtual” stop may be the State Engineer’s automated system for identifying water rights called the New Mexico Water Rights Reporting System, formerly called “W.A.T.E.R.S.”1 However, the online file it is not always accurate or complete. Even the physical files merit a close look. The files in the main State Engineer office in Santa Fe are supposed to be duplicates of files in the district offices around the state, but that is not always the case. Sometimes a check in both the Santa Fe and District office is warranted. One new development is that more and more physical files are being digitized and put into the online system—and removed from the publicly accessible files. For example, all files in the Sandia Basin in the East Mountain Area are now online-only. Some Middle Rio Grande water rights files also have been digitized and are no longer available for physical inspection.
Under New Mexico law, a declaration is prima facie proof of the validity of the water right,2 but the State Engineer has the discretion to refuse to accept an amended declaration. Eldorado Utilities, Inc. v. State, 2005-NMCA-041, 137 N.M. 268, 110 P.3d 76, cert. den., 2006-NMCERT-004, 137 N.M. 454, 112 P.3d 1111. Moreover, in a transfer application, the Water Rights Division often challenges a declaration based on historical information. Due diligence, therefore, should only begin with the permit or declaration, not end there.
B. Checking the validity of the water rights themselves
The main concern in New Mexico is whether the water right has been used consistently since it was permitted or first used. If a right has not been used, it could be subject to (1) forfeiture or (2) abandonment. Before 1965, water rights could be forfeited for a period of nonuse of only four years.3 In 1965, the statutory scheme was changed to require that the State Engineer send out a notice of forfeiture and give the water rights owner a year to cure the non-use. Very few notices have even been sent out, so most inquiries for non-use for forfeiture focus on the pre-1965 period. However, in the Estancia Underground Basin, the District Office has sent out a few forfeiture letters. If any letters have been sent out, they would be in the State Engineer file. Moving to abandonment, a very long period of non-use may result in a determination of abandonment, but it is not defined in the statutes, and New Mexico case law did not discuss a time period until 2012. In State ex rel. State Engineer v. Elephant Butte Irrigation District, 2012-NMCA-090, ¶ 25, 287 P.3d 324, the Court found that failing to apply water to a farm for 50 years was enough to create a presumption of abandonment.
The farmers’ claim that they were excused from farming because legal access was difficult was not enough to overcome the presumption, and the Court upheld a finding of forfeiture (for nine years of non-use before 1965) and abandonment. Id. at ¶¶ 1, 16. More generally, a period of 16 years of non-use is considered to be enough to imply a rebuttable presumption of an intent to abandon, and while the Elephant Butte case sheds some light on the abandonment theory, it does not set a minimum time period for the presumption to attach. However, the presumption can be overcome, as demonstrated in the Rio Chama adjudication in federal court in 2004. In that case, New Mexico Federal District Judge Bruce D. Black discussed the issue and rejected a conclusion of “abandonment” from the State Engineer and the Special Master. Judge Black ruled that while no water was used for almost 20 years, the water rights owner demonstrated that she did not intend to abandon the water rights. She gave evidence of a number of actions she took to try to repair the water delivery system (a flume that had been washed away), and Judge Black found they were not consistent with an intent to abandon her water rights. A copy of that decision is attached as “Exhibit A.”
The New Mexico Court of Appeals found that a hearing officer could not insert the issue of abandonment and deny an application when neither the applicant nor the Water Rights Division raised abandonment as an issue. See Albuquerque-Bernalillo County Water Utility Authority v. New Mexico State Engineer, 2013 WL 5309895 (N.M. Ct. App. 2013). The court also affirmed that water rights were “valid” because they had been included in the utility’s water development plan, even though the irrigated land was paved over and had been a street for more than 40 years. A copy of the decision, which is unreported, is attached as “Exhibit B.”
Many sources of information are available for checking the historic use of water rights. Not all sources will be available for every water right, and the local State Engineer’s office can be very helpful in guiding you to the sources available in that area. Generally, however, the current owner should be able to provide information documenting the use of the water rights, or direct the lawyer to other sources of information. Some contracts for sale provide such a requirement, including an obligation for the seller to produce information or create appropriate affidavits that document the use of the water rights.
C. Due diligence at a glance
Here is a check list for the due diligence process, adapted in part for the Middle Valley:
1. Validity of Water Rights and Title to Water Rights
A. Check State Engineer files for any memos or letters re water rights and history of the permits
B. Forfeiture or abandonment:
1. Before 1965, were rights unused for any 4‐year period (forfeiture)?
2. Any letters warning of forfeiture in State Engineer file?
3. Anytime, and especially after 1965, did user intend to abandon water rights through non‐use?
C. Field inspections
1. Assess water features
2. Documentation provided by seller
D. Sources of information to investigate historic use:
1. Maps of historic use; e.g., 1917‐18 map in the Middle Rio Grande
2. Irrigation district records (e.g., Middle Rio Grande Conservancy District map and plane table survey from 1926)
3. Hydrographic survey (available in small portions of state only)
4. Aerial photos showing irrigation
a. State Engineer’s office
b. Soil Conservation Service c. Earth Data Analysis Center, http://edac.unm.edu/
d. Private, commercial sources of photos
a. Existing affidavits?
b. Interview old‐timers and current landowners and draft affidavits:
(1) Describe the property specifically (e.g., tract number from irrigation district map, or tract in subfile)
(2) Make sure they’re specific in describing the uses of the water (e.g., crops grown) and how the affiant knows these facts
E. Does the seller own the water rights free and clear?
1. Title investigation
2. Clean up title, if needed, with releases or quitclaim deeds
2. Security of priority
A. Issue: Is the water right threatened by some outside agency or circumstance so that it might not be available for use in the future?
B. Possible concerns:
1. What is the priority date, and how likely is the water right to be subject to a priority call?
2. Federal reserved rights – Indian reservations, other federal reservations
3. Endangered Species Act limits on water use
4. Interstate compact obligations
5. Do water quality standards mandate flow requirements that may restrict diversion of surface water?
6. Any existing disputes with other users?
3. Can the water be used for the intended place and purpose?
A. Any administrative criteria apply?
B. Need approval of acequia or community ditch, or to show that no acequia is involved? (See discussion below)
C. Can place of use be transferred?
1. Will application be protested?
2. Will application be approved under the criteria of
a. no impairment,
b. conservation and
c. public welfare?
D. Can purpose of use be changed?
1. Will application be protested?
2. Will change affect
a. public welfare,
b. conservation or
c. impairment considerations?
4. Is the water wet?
A. Hydrologic assessment
1. Suitability for use in current place
2. Suitability for transfer
3. Water quality issues
B. Historic shortages? (e.g., Tesuque Creek has only 80% flow)
C. Computer models of the area show water is available in the long term?
D. How do you do due diligence after the Turner v. Bassett decision where a transfer permit can create a rebuttable presumption that water rights have been severed from the land?
The New Mexico Supreme Court has created a presumption of severance for appurtenant water rights that are subject to a permit to transfer the place of use, and the old rule that silence in a deed conveys irrigation water rights can no longer be trusted. Turner v. Bassett, 2005-NMSC-009, 111 P.3d 701 (2005) (hereinafter “Turner II”). In the case, the Bassetts had farmed land for many years, and in 1976 and 1979 they received permits from the State Engineer to continue farming, but also to begin transitioning the water from agricultural use to other uses—domestic, commercial and industrial. They stopped irrigating one particular tract in 1981, two years after the second multi-use permit was issued, but they never placed all of the water to use for a new purpose or at a new place. Thus, the last use of the water was the irrigation of the tract of land. In 1984, the Bassetts sold the tract to William Turner, who wanted eventually to develop the land for housing. The Bassetts and Turner did not discuss water rights at all during their negotiations for the land purchase. The Bassetts’ 1984 deed to Turner for the land was silent concerning water rights. It specifically reserved the right to work on wells on the land, but it did not mention water rights. Turner thought nothing about it until the late 1990s, when he learned that the Bassetts’ successor in interest was selling water rights, and included among them were water rights apparently appurtenant to the land he had bought. The Bassetts, who were still developing their water rights, had not filed an application for a license, and no license had been issued. Turner checked the deed, and finding no mention of water rights, he filed suit to quiet title to the water rights in 1999.
The District Court in Santa Fe found, on a motion for summary judgment, that the Bassetts had severed the water rights prior to the sale because they had received State Engineer permits to change the place and purpose of the use of water and had ceased irrigation before the sale. The New Mexico Court of Appeals found no severance and reversed the District Court, relying on Sun Vineyards, Inc. v. Luna County Wine Development Corp., 107 N.M. 524, 760 P.2d 1290 (1988). Turner v. Bassett, 2003- NMAC-136, ¶ 12, 81 P.3d 564 (2003). The Court of Appeals, rejecting one of the Bassetts’ arguments, noted: “In Sun Vineyards, Inc., however, the Supreme Court specifically held that when a person claiming severance conveys property without reserving the water rights, that conveyance results in the discontinuation of the severance process. . . . We read Sun Vineyards to equate reasonable diligence with the traditional requirement that a party to a sale of property must reserve water rights if they do not wish to convey them with the property.” Id. ¶ 14.
The Supreme Court, however, found that Sun Vineyards did not apply, and it instead created a new “rebuttable presumption” of severance: We conclude that the severance statute, the applicable regulations, the general practice of the State Engineer, and the permit itself all support the view the Bassetts presumptively severed their water rights from the property upon receipt of a permit from the State Engineer. Turner presented nothing to the district court that would rebut the presumption created thereby: that the land passed to Turner without those water rights. Turner II, at ¶ 28. The Court did not explain whether the re-application of water to the land after the permit was issued had any effect, or why Turner could not go back to the trial court to present evidence on a presumption he didn’t know existed. The Court denied a motion for rehearing.
What Turner II means for the lawyer is that a deed is no longer definitive if it is silent as to irrigation water rights because the rights could have been severed by a State Engineer permit, even if the severed water rights have not been used elsewhere. The State Engineer investigation, therefore, is even more important. The safest course, as always, for the person conveying the land without water rights is to reserve the water rights. But now, under Turner II, sometimes even a sloppy deed can be read to reserve water rights. Perhaps one way to work around this issue is to add a warranty for the seller that he has not, and does not know of, any permit to sever the water rights. But if the current owner is recent, that may provide little comfort, and even less recourse.
II. Pitfalls in transferring the water right from the surface to a well
In most cases, the sale of a water right is contingent on the transfer of the water right—so that it can be used at the new location, and usually for a different purpose. Thus, if the water rights are transferred, they are sold. But if the transfer fails, the buyer does not want to buy the “water rights” and the contingency contract does not require him to buy them. Often, in a particular transfer, a portion of the water rights can be transferred, but the other portion, determined to be “invalid,” cannot be transferred and, consequently, cannot be sold. In the Middle Valley, the State Engineer usually determines that the “invalid” surface water rights in the application were not pre-1907 water rights and thus not transferable water rights. (The land can still be irrigated even if it does not have pre-1907 water rights because the permit held by the Middle Rio Grande Conservancy District covers most of the irrigable acreage in the Middle Valley.
However, the water rights created pursuant to the MRGCD’s permit cannot be sold off piecemeal by an individual.) In other basins, and in permitted surface or groundwater rights, the State Engineer may determine that the permit was never used, so the permit that could have been used did not develop into vested water rights that could be transferred. Hanson v. Turney, 2004-NMCA-069, 136 N.M. 1, 94 P.3d 1 (State Engineer properly denied transfer request, reasoning that failure to put the water to beneficial use meant that there was no “water right” to be transferred).
A. Only the “consumptive use” is transferable
One other issue is that only the “consumptive use” amount of the surface right (“CU”) can be transferred, and that is often significantly less than the amount the farmer could divert from the ditch or pump from a well. The CU, sometimes called the “consumptive irrigation requirement,” is determined by the amount of water that the crops can use. Factors in the CU include which crops are grown and the elevation, which dictates the length of the growing season. For example, in the Middle Valley, the CU generally is 2.1 acre feet (“AF”) per acre, and the duty (amount that can be diverted) is generally 3 AF per acre. By contrast, in the San Juan River Basin near Bloomfield, the duty of 3.01 AF/acre is about the same, but the CU is much less – it’s only about 1.64 AF per acre. In the Estancia Underground Basin, the duty is 2.5 AF/acre from wells, but the CU is 1.23 AF/acre.
B. Preparing the application—process and pitfalls
The transfer process begins in an administrative proceeding before the Office of the State Engineer, and it is governed by statutes, regulations and case law. The Water Code addresses surface water transfers in §§ 72-5-23 and -24 and related sections, and groundwater transfers are governed by §§ 72-12-7 and 72-12-3. The pre-approval required from the governing boards of acequias or community ditches for transfers affecting them is outlined in §§ 72-5-24.1, 73-2-21 and 73-3-4.1. While the exact procedures may differ in a few details, the principles used for both surface and groundwater generally are the same, and cases explaining surface water rights apply to groundwater issues, and vice versa. City of Albuquerque v. Reynolds, 71 N.M. 428, 437, 379 P.2d 73, 79 (1962) (“The legislature has provided somewhat different administrative procedure whereby appropriators’ rights may be secured from the two [surface or ground water] sources but the substantive rights, when obtained, are identical.”)
The typical transfer in the Middle Valley is a study in contrasts, from small to large, from surface water to groundwater. The transfer is from a small place of use (a farm), a single use (irrigation), and a single diversion point (one ditch) to a large place of use (a municipality or at least a subdivision), a wide range of uses (municipal, industrial, commercial and the catch-all “related” uses), and often many diversion points (all the wells in a municipality’s well field).
The transfer itself usually begins with an application to transfer surface water to a groundwater well. The application must be signed by both the buyer and the seller as co-applicants, even though the buyer (in almost all cases) does not yet own the water rights. The application also must be notarized.
C. Acequia/community ditch approval may be required
A requirement since 2003 requires an extra step before the application can be approved if the transfer would be into or out of an acequia or community ditch. In that case, which applies in parts of the Middle Valley, the applicant must obtain approval from that organization or show that the organization doesn’t require approval before the State Engineer can approve the transfer. NMSA § 72-5-24.1. For an example of a memorandum from the co-applicants stating the requirement does not apply, see “Exhibit C” attached. To be able to require this approval step, the acequia or ditch must have passed bylaws requiring that a change in point of diversion or place or purpose of use of a water right served by the acequia or affecting it shall be subject to approval the by acequia’s commissioners. (See further discussion of this issue in the materials on
Acequia and Community Ditch Considerations in Transfers.) Significantly, if the acequia has not passed bylaws and failed to protest a transfer application, the acequia cannot later intervene in the State Engineer proceeding. Storm Ditch v. D’Antonio, 2011-NMCA-104, 263 P.3d 932. The acequia cannot stop the transfer, once approved, even if the applicant failed to follow the procedural laws regarding acequia involvement in the transfer process. Id. at ¶¶ 24-26.
D. Publication and protest
After filing the application and the appropriate fee ($50 for surface to ground water) with the State Engineer’s office, the office prepares a “notice for publication” that the applicant must publish in a newspaper once a week for three weeks. The notice letter to the applicant specifies which newspaper or newspapers must be used, no longer leaving that choice to the applicant’s discretion. The statutes have been interpreted to mean that the newspaper must generally circulate in the affected counties.4 The newspaper will send an “affidavit of publication” to the applicant, and the affidavit must be filed with the OSE. After the last day of publication, protestants have 10 days to file a protest, in writing, with the OSE. The protest, which must be written, can be faxed to the OSE to meet the deadline.
E. Protested or not—a big difference
If the application is not protested, generally it is reviewed in the local OSE District office, unless it presents some unusual hydrologic issue that merits sending it to Santa Fe. That’s the easy path. The harder path—much harder—is if the application is protested. In that case, the application process can turn into litigation, with all its time and expense costs, experts, witnesses, and a full-blown hearing in front of a hearing officer for the OSE. However, as in civil litigation, few cases go all the way to a hearing. One estimate is that hearings occur in less than 20% of the protested or aggrieved cases (where the application was not protested, but the applicant disagrees with the OSE decision). In the other cases, the protests are resolved, the application is withdrawn, or the case is otherwise resolved without a hearing.
F. Mediation—successful in resolving cases
One viable alternative to the very hard path is mediation. Since November 2007, the OSE Hearings Unit has had a full-time mediation facilitator, Charles Kinney. The program is very successful, which Kinney modestly attributes to good selection of cases to send to mediation. Of the 101 cases that had been sent to the mediation process as of February 2013, 76 or 75% have been partially or fully settled. Only about 30% of the protested or aggrieved cases are referred to mediation, based primarily on whether the case presents issues that can be mediated. For example, a case concerning the determination of “valid” water rights to be transferred is a good candidate for mediation. But a case about a purely legal issue—abandonment—or a policy of the State Engineer generally will not be referred to mediation. Kinney says mediations are successful when the parties have a good idea of what they really want from a case and don’t view the mediation as a “hearing-lite.” One issue he sees frequently is that a particular case is only one piece of the larger issues facing the community. The best result in that instance, he said, is that the parties realize that they need to work together instead of opposing each other “just because” they can. That’s where clarity of the underlying goals can help. Kinney said many times, parties simply want a place at the table and want to be heard.
G. Mediation procedure and value to attorneys and clients
The process generally begins with each party having a pre-mediation meeting with Kinney, which is confidential. At that meeting, Kinney explains the process and tries to narrow the issues. The parties are encouraged to attend the pre-mediation meeting, which Kinney intends to be a substantive meeting on the issues. Before the mediation itself, each party prepares a mediation statement. While Kinney encourages parties to share their mediation statements, most choose to keep it confidential. In the interim before the mediation, discovery continues along the hearing schedule. Often the Water Rights Division will issue its report so that the parties know the WRD’s position. Mediation often are scheduled after the first exhibits deadlines so all parties have a good idea of the documents and reports that will be used.
One value of the mediation itself is that the parties can get a “real world” reaction to their cases and be more open to settlement/compromise. This is particularly true if Kinney is joined by a hearing officer as a co-mediator. Another advantage is that WRD representatives (with decision-making authority) are at the mediation, and there’s an opportunity to negotiate on permit conditions. The mediation itself is confidential, and communications to the mediators are confidential unless the parties specifically say the information can be shared. Usually the mediation begins with a joint session with brief statements by the parties and a discussion. Then, if it’s useful, the parties can break into different groups. Mediations are generally scheduled for one day. If an agreement is reached, the parties at least sketch out the terms of the settlement on paper. Usually, the actual settlement documents are prepared later.
H. Legal standard for transfers—impairment
The legal standard for approval of a transfer is three-fold, and the transfer will be approved only if the transfer:
1. Will not impair other existing water rights
2. Is not contrary to conservation of water within the state, and
3. Not detrimental to the public welfare of the state.
The impairment issue is a mixed legal/factual question, and the facts are best supplied by a hydrologist. In unprotested cases, the WRD will issue a report on the well’s effects, but in protested or aggrieved cases, the applicant must produce evidence that the well will not impair others. The hydrologist can determine, typically using a mathematical model, what effect the transfer will have on the move-to location, which usually is a well, and particularly on the surrounding wells. The issue generally is whether the increased pumping of the move-to well will have enough “extra” impact on surrounding wells to “impair” the other wells. The hydrologist can predict how much extra impact will result, but whether it is “too much” and results in impairment is a legal conclusion. Montgomery v. Lomos Altos, Inc., 2007-NMSC-002, 141 N.M. 21, 150 P.3d 971 (new depletions do not automatically constitute impairment as a matter of law). In some basins, including the Middle Rio Grande and Estancia, the OSE has issued guidelines that in effect address impairment. (The guidelines are available on the OSE website.)
I. What are “conservation” and “public welfare” anyway?
The other two criteria, conservation and public welfare, are much more ambiguous. Neither “public welfare” nor “conservation” has been defined in regulation or case law. The only reported attempt to define public welfare was in Ensenada Land & Water Ass’n v. Sleeper, 107 N.M. 494, 760 P.2d 787 (1988), but the Supreme Court ruled that the then-newly enacted criteria of public welfare did not apply to this application. A few years later, then-State Engineer Eluid Martinez stated in an administrative decision granting chip-maker Intel Corporation a new appropriation of groundwater that the public welfare criterion was satisfied if the water would be used for a beneficial use and the purpose was allowed under the zoning classification of the property. See In re Applications of Intel, Nos. RG-57125, RG-57125-S and RG-57125-S-2 (1994). In general, most applicants try to satisfy the conservation criteria by showing the new development will have water-conserving regulations or requirements. The public welfare criteria can be the source for many types of protests, from environmental to social justice. Applicants sometimes try to satisfy that criteria by showing that the development will have positive economic impacts.
The timeline for applications varies widely, depending on the complexity and contentiousness of the case. Some non-protested transfer applications can go from publication to approval in a matter of five or six months. Others, with lots of protests and complicated issues, can take years.
J. Appeals can be a trap for the wary
After the decision is issued, the parties have 30 days to file an aggrieval, or administrative appeal. Also during that 30-day period, the parties can ask for correction of errors in the decision. The key is to determine when the 30-day period begins to run. It begins when the decision is received by the applicant. Moreover, keep in mind that any request for corrections does not toll the 30-day period. After this period, if no appeal is filed, the State Engineer’s decision is conclusive.
The administrative appeal of a non-protested application sends the application to the Hearings Unit for review. It then follows the hearing process and results in a new decision of the State Engineer. The appeal of a protested decision by the State Engineer, which already has gone through the hearings process, goes to the state District Court in the county in which the transfer would occur. §72-7-1.
Serving the notice of appeal on the State Engineer for the District Court case is tricky, and it is important to serve the State Engineer himself. Garbagni v. Metropolitan Inv., Inc., 100 N.M. 436, 796 P.2d 1132 (Ct. App. 1990). Once appealed, the case proceeds de novo in the District Court, and the parties—now the applicant, any protestants and the State Engineer—can proceed as if the earlier hearing never happened. The court also can use evidence from the hearing. Fort Sumner Irr. Dist. v. Carlsbad Irr. Dist., 87 N.M. 149, 530 P.2d 943 (1974). After the District Court rules, the case can be appealed through the appellate courts.
III. Title investigation in the due diligence process – Basics and Case Law
Both surface and groundwater rights are property rights, and they may be conveyed by deed separately, or as part of a conveyance of property. However, there is no general requirement that water rights be declared or permitted, and many irrigation rights have not been documented in the State Engineer’s office or in county property records. Thus, title to most water rights must be traced through the title to the appurtenant land. Water rights are appurtenant to irrigated land,5 but they are not appurtenant to land if they are used for other purposes, unless their use is integral to the use of the property.6 And, under the Supreme Court’s decision in Turner v. Bassett, 2005-NMSC-009, 111 P.3d 701 (2005), irrigation water rights that were appurtenant to land are presumed to be severed if a permit has been issued allowing the severance to occur, even if the water rights were not reserved in a deed and have not been put to full beneficial use elsewhere. (See discussion of this issue in section I.D. above.) In the case of non-irrigation rights, which are the exception in New Mexico, the title should be traced through a deed referencing the permit.
State Engineer records seldom have a complete record of ownership of water rights because sellers and buyers were not required to file change of ownership forms with the State Engineer until 1991.7 Title insurance is not available for water rights in New Mexico, so the due diligence inquiry usually requires obtaining a search and report from a title company. In fact, title to “water rights, claims or title to water” is the only exception that cannot be deleted from a title binder or title insurance policy. (See N.M.A.C. § 126.96.36.199.) Title companies generally will search the grantor-grantee index for deeds and other documents affecting title to the underlying property, and the lawyer can review the documents to ensure that the water rights were not conveyed away to a third party or reserved to the grantor. Many deeds include the phrase “and all appurtenant water rights,” which generally is sufficient to convey irrigation water rights, but it may lead to ambiguity if the water rights have been split up over time.
Title is questionable if you find encumbrances, such as mortgages on land that have not been extinguished, reservations of water rights to another party, real estate contracts not followed by a deed, divorce documents or indications of a divorce with no accompanying deed, tax liens or similar documents. To resolve these issues, get a release of mortgages or real estate or other encumbrances, or a quitclaim deed from the last person with clear title in the chain of title to the proposed seller.
In the case of surface rights, the ideal is to trace the land title back to 1907, when New Mexico adopted its surface water code and new surface rights had to be obtained by permit. If that is impractical, generally looking 30-40 years back will provide enough of a record to examine whether water rights were (1) encumbered by a mortgage or (2) stripped off the land and separately deeded to another party. For groundwater rights, the best review would examine the chain of title from the time the well was first drilled. If it is a very old well, and it began production before its particular groundwater basin was declared, examination of the title from the time of the basin declaration probably will be adequate to confirm that the seller has good title. The State Engineer declared the various underground basins at different times, so the “start date” for title examination in these cases will also vary.
Checklist and Cautions for Transferring Title in Water Rights:
1) Due diligence is key
a) Check seller’s records
i) Do not rely on their “word”
ii) Real estate broker may be helpful, but have no knowledge of water rights
iii) Do not rely exclusively on advice of State Engineer staff
2) Title documents/search of the public record is necessary for title review
a) Title company will not issue title insurance for water rights (but in a tricky land ownership situation, such as multiple trusts, title insurance to the appurtenant land will give you a starting place for ownership)
b) Seller should provide title documents, including a certification from a title company that the public record has been searched
c) Look as far back as possible
d) Review past and current surveys or plats
3) Watch out for in title search:
a) Reservation of water rights
b) Mortgage or other encumbrance
c) Real estate contract
d) Tax deed
e) Conveyance to MRGCD
f) Probate – or lack of probate
g) Quiet title suit
h) Divorce/separate property agreement
j) Tax liens
k) Easements, roads and similar encroachments
1 The NMWRRS can be accessed from the State Engineer’s website, ose.state.nm.us.The system includes summaries of water rights files, well records, and reviews of subdivision water availability reports. Although the system can give basic information, it should not be the only source used, because some sample searches found that information was incomplete, incorrect or missing.
2 NMSA 1978 § 72-12-8(B).
3 NMSA 1978 § 72-5-28 and § 72-12-8.
4 See § § 72-5-4 for surface water and § 72-12-3(D) for groundwater.
5 NMSA §§ 72-1-2, 72-2-22, 72-5-23.
6 In KRM v. Caviness, 122 N.M. 389, 925 P.2d 9 (Ct. App.1996), the Court of Appeals clarified this distinction and determined that a contract to sell land did not by operation of law also convey water rights used for commercial purposes, unless the rights are “indispensible” to the use of the land. The court remanded the case to determine if the contract intended to convey the water rights. See also, Walker v. United States, 2007-NMSC-038) (a water right is not an automatic stick in the bundle of rights a landowner receives upon purchasing even a fee interest in land).
7 NMSA 1978 § 72-1-2. The statute also has required, since 1996, that the change of ownership form be recorded with the county in which the water rights are located, but that is too recent to be reliable in tracking down the title of a water right.