Hydrofracking leases may violate fine print on mortgages, title insurance

Hydrofracking leases may violate fine print on mortgages, title insurance.

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Hydrofracking drilling leases may violate fine print on mortgages, title insurance

Homeowners who lease their drilling rights to the oil and gas industry for hydrofracking may no longer be covered by their title insurance.

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By Susan Arbetter

A group of Tompkins County residents believe they have found a troubling new consequence of “hydrofracking” gas drilling in New York—not environmental but financial.

Reading the fine print on residential mortgage and title insurance requirements, they found many New York properties have tight technical restrictions on the size and location of drilling structures.

That means homeowners who lease their drilling rights to the oil and gas industry for hydrofracking may no longer be covered by their title insurance. They may not be able to take out second mortgages on their properties. In the worst case, they may not even be able to sell their land as long as a drilling lease is in effect.

“Economic development is expected to be the upside of this activity,” said Carol Chock, a Tompkins County legislator who headed a local committee reviewing how gas drilling would affect property assessments.

“The understanding is that if we’re willing to take the risk, the reward will be economic,” Chock said. “But are we sure that’s true?”

Gas drillers say the worry is overblown, but it has made its way to the governor’s office.

Assembly Member Barbara Lifton arranged for Chock, two local mortgage lenders and a real estate agent to meet in Albany last month with three aides to Gov. Andrew Cuomo—Anthony Giardina, Jim Malatras and Tom Congdon—as well as with officials from the Department of Environmental Conservation (DEC).

The DEC is scheduled to release a detailed blueprint for gas drilling in New York by July 1, but the Cuomo administration has not said whether land financing will be addressed.

While landowners in economically depressed regions across the state are generally open to leasing their drilling rights, the Assembly recently passed a year-long moratorium on the controversial practice, because they fear hydrofracking will contaminate the water supply.

“Natural gas locked within the Marcellus Shale isn’t going anywhere. We’re not going to lose it,” Speaker Sheldon Silver said last week. “There’s too much at stake not to err on the side of caution.”

Though the shale isn’t going anywhere, cash-strapped New Yorkers in struggling areas of the state are going bankrupt. Some are going into foreclosure. Others are hanging onto their homes a month at a time, waiting for the state to allow drilling.

This friction between upstaters who support and oppose fracking is on vivid display in Tompkins County, home to the city of Ithaca, one of the only growth hubs in a region marked by poverty. Ithaca has insulated itself from its neighbors’ economic problems with the help of its 25,000 college students. Yet like the conservative farming communities that border Tompkins County, Ithaca sits atop 500 trillion cubic feet of natural gas.

Tompkins County discovered the potential mortgage and insurance pitfalls of hydrofracking after it formed a task force last winter to consider the impact of gas drilling.

At Chock’s request, Gregory May, the vice president of residential mortgage lending at Tompkins Trust Company, began digging into the assessment and valuation issues. His four-page report, issued in March, stunned county officials.

One problem he found: New York environmental regulations require a 100-foot setback between a drill and any dwelling. But the secondary mortgage market, including Fannie Mae, Freddie Mac and the State of New York Mortgage Agency, requires a 200-foot separation.

If a setback falls short of 200 feet, May wrote, a prospective buyer may not be able to get financing, and sellers may find fewer purchasers for their land.

Another problem: To qualify for title insurance, properties with gas leases in New York must not be used for any commercial purpose, have structures taller than 35 feet or store gas-drilling equipment on site.

If a property owner or a gas company that has leased the owner’s drilling rights violates those terms, May wrote, the title insurance on that land could be invalidated—blocking a homeowner from taking out a home-equity line of credit.

“The inability to sell loans to the national secondary market could potentially impact property values because of the lack of competitive mortgage financing available in the marketplace,” he wrote.

The Independent Oil and Gas Association of New York, which represents drillers, calls that fearmongering. Randy Hansen, a spokesperson for the group, said no permanent gas-drilling structures are taller than one story, and he believes 200-foot setbacks are standard on most New York leases.

“I think common sense needs to be brought to bear in interpreting these regulations,” Hansen said.

There is no way to easily check setbacks and other provisions, because drillers aren’t required to file the full terms of a lease publicly. Tompkins Trust Company’s law firm, however, says it has seen plenty of problems caused by lease requirements—and that homeowners affected by them are simply stuck.
“If the gas companies would simply terminate a homeowner’s lease on request, or release the surface rights, this wouldn’t be an issue,” said Randy Marcus, a partner at Barney, Grossman, Dubow, Marcus & Orkin, which specializes in real estate transactions and finance. “The gas companies are absolutely intractable. They want to hang onto these leases.”

The state mortgage agency declined to comment, saying it is reviewing the potential problems. But as lawmakers become aware of the issue, nearby landowners who want to tap into gas-lease revenue are becoming impatient.

Said Bradd Vickers, president of the nearby Chenango County Farm Bureau: “We have faith in the DEC.”

Susan Arbetter reports from the Capitol in Albany for Central New York’s PBS station, WCNY in Syracuse. She hosts a daily live radio show, “The Capitol Pressroom,” and produces “The Capitol Report,” broadcast daily on television across New York State.

One Response to Hydrofracking leases may violate fine print on mortgages, title insurance

  1. Kim Michels says:

    It amazes me how the gas industry has been getting away with getting people to sign these leases under false pretenses. I think the public would be surprised at how many of these “poor farmers” and landowners would do anything to get out of their leases permanently now that they have become aware of the risks. Risks that the gas companies and their landmen either withheld or lied about in obtaining those leases. Then they have the audacity to pretend that they are on the side of the very people they have and continue to exploit. Fleased.org is representative of some of those people who’ve been exploited. Sadly, instead of protecting their own people, many of our government agencies, officials and employees appear to be protecting the gas industry at our peril. No doubt many at risk of losing their jobs if they don’t. Former DEC Commissioner Pete Grannis being fired by Governor Paterson for revealing the appalling inadequacies of the DEC is a perfect example. Our Chenango County Natural Gas Advisor, Steve Palmatier, lobbying for the gas industry and seeking out grants for them while being paid with our tax dollars. Did I mention that Brad Vickers of the Farm Bureau is also a member of this Gas Advisory Committee? That Assemblyman Cliff Crouch who sings the praises of fracking and how safe it is, is the nephew of Charles Crouch whose property was the site of a drilling accident in 2009? An accident that involved a fire, 2 injuries, a spill and breach of the containment area of the spill that resulted in “silty” but supposedly safe “water” flowing into the Lebanon Resorvoir. It was reported that soil samples had been “mishandled”. Considering that this was discussed by County officials, one might be surprised that the public was never made aware of this and other so called accidents here in NY.

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