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Mortgages and Hydraulic Fracturing

Mortgages and Hydraulic FracturePeople recognizing the many ways in which drilling and hydraulic fracturing can damage the value property has put the mortgage industry on the defensive. This activity is making the industry tighten its lending policies, consequently prohibiting properties with a well on them or properties that are the subject of leasing for the exploitation of unconventional fuels from receiving mortgages.

After the debacle concerning North Carolina mineral rights, Credit Union officials have decided officially not to approve more mortgages on properties whose drilling rights are sold to third parties. Three credit unions, who manage about $12 billion in mortgages alone, said they believe the loans on these properties are riskier than those in which the mineral rights are not separate properties.

At least three very important mortgage-lending institutions (Ithaca’s Tompkins Financial, Banco Santander, and Credit Cooperative State employees in Raleigh, North Carolina) are refusing to grant mortgages where mineral rights on gas and oil have been sold off to energy companies. The CEO and president of the credit union is quoted as saying that if an owner allows a rig on his land, “I have to say to your neighbors,” sorry, but your property has been devalued.

The language in the mortgage contracts prohibits Freddie Mac from “performing any actions that could cause damage, deterioration or decrease the value of the collateral.” If a party contravenes this prohibition, the financial institution holding the loan has the legal right to claim the full amount secured by the mortgage.

The record prepared by the NYSBA about the negative consequences of the leases for gas exploration in the headlines of property also includes sections on home mortgages and argues that the combination of property rights on the surface and drilling rights underground is one that does not work.

A couple of Quicken Loans locations in Pennsylvania denied a loan secured by a mortgage on a person’s farm because there was a drill sites across the street, and according to a financial statement, “gas wells and any other structures in the surrounding lots… could significantly degrade the value of a property.” Two other financial institutions also denied the mortgage.

Financial institutions and mortgage loans (Fannie Mae, Freddie Mac, FHA) have prohibitions regarding loans that are considered secured properties where possible hazardous drilling is in progress or where hazardous supplies are being stored.

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1 Comment

1 Comment

  1. Jeanne Rhea

    Apr 5, 2014 at 3:52 pm

    Almost four years ago, we went to Arkansas to purchase a home and discovered that the mineral rights had been sold. Although the owner of the property said that he had been forced into selling or they would be fracking anyway, we did not believe him. We did our homework and discovered that through forced pooling, property owners can be forced into allowing fracking under their property. We checked the county out well and spoke to several real estate agents. All the agents said that fracking had ruined the property values in the area and from what we could see, there was little to entice anyone to purchase property there. Roads were in bad condition, water was contaminated (Front page news to not drink the water on the day we visited) and the county had an overall rough appearance.

    We have been vocal about warning those in NC about forced pooling and the hazards associated with it and that some lending institutions can technically call in a loan should fracking happen on the property. NC Mining and Energy Commission Chairman Jim Womack does not seem to get how devastating this can be to someone who has worked hard all of his life and then to not be able to pay off a loan if the mortgagor wants to get their money. Some terms even call for a mortgage holder to receive any monies that are received from these leases bypassing the property owner.

    Many times eminent domain is abused— all for the profit— of the O&G industry or for landowners who own large tracts. They are the only ones who stand to gain much from fracking. The rest of us just pay for more law enforcement, more health care, more road maintenance and other infrastructure costs. The fact that property values can decline sharply for small property owners does not seem to be important to Mr. Womack or those on the commission who seem to think that fracking will save Lee County.

    We chose to live in the country in NC because we wanted peace and quiet. That is what we purchased when we bought here. If fracking comes to Lee County, we may be living in the middle of a heavy industrial zone—breathing contaminated air, drinking contaminated water, being forced into listening to gas well drilling and when it is all over, we may be left with a polluted environment that cannot easily be reclaimed. On top of all of that, our property values may be so diminished, we could not leave if we wanted.

    If anyone reading this does not know about fracking, please do some research. Find information that is not put out by the O&G industry and don’t even think your representatives and those in government offices care about your well being. (There are a few running for office who are against fracking—but you need to ask, “Are you in favor of fracking in NC?” If they do not give you a straight “NO” answer, do not vote for them.) Our elected officials who are promoting fracking have shown over and over that they only care about the dollar and do not care about the health of their constituents.

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