Impact on Property Values, Mortgages, Insurance
- Elizabeth Radow on Real Estate, Mortgage, Insurance Liability impacts of residental drilling on Capitol Pressroom, Oct 3, 2011.
- Stop Gas Drilling — Sue Your Neighbor. “Enter Gregory Alexander, A. Robert Noll Professor of Law at Cornell University. He says there’s a well-trodden legal path that could stop drilling before it begins. Called anticipatory nuisance, it’s basically the notion that you can stop your neighbor from doing something if waiting to sue until you’re harmed is ludicrous. In a western, this is where the marshal says you shot in self-defense.” http://www.huffingtonpost.com/andrew-reinbach/stop-gas-drilling-sue-you_b_787881.html ( NOTE: This approach has not been supported by the courts in NY)
- Elizabeth Radow Home Owners and Gas Leases: Boon or Bust?
- All residents should be concerned about this information received from a local realtor: “I had a customer inform me two days ago that the home equity loan they were obtaining in order to purchase a small investment piece near them was turned down by GMAC because their home property was under a gas lease. I dug a little further and found through mortgage brokers that that they are encountering the same reluctance on the part of some local and some bigger banks to lend on leased properties. I hope those who have signed leases have figured this into the equation. A similar example would be as in the case of Flood Zone properties for whom the Flood Insurance program was withdrawn, banks would also not lend on those. In the real estate world, things like this are a huge consideration in factoring property values. Just thought some people might not be aware of this trend by lenders.”
Here are the names of banks who will not fund leased properties, based upon environmental risk, as per information gained from a mortgage broker who is still looking further into the situation:
First Place Bank
Wells Fargo (will know for sure in a few days)
Bank of America http://lizjbucar.wordpress.com/2010/04/20/cochecton-zoning-to-allow-widespread-drilling-mortgage-troubles-on-leased-properties/
- Drilling can dig into land value. September 18, 2010By Peggy Heinkel-Wolfe / Staff Writer Denton Record-Chronicle.
- Gas_Banks that won’t fund leased properties info
- Gas HUD FHA rules affect property values
- Gas_MortgageBrokerCorrespondence with major banks
- How Marcellus Shale Gas Drilling Will Depress Your Property Values Steve Coffman Committee to Preserve the FingerLakes.
- Mineral rights drive up prices at Broome County tax auction: “…Mineral rights on foreclosed properties that are more than 5 acres stay with Broome County…” ” (Kellie M. Place “The Land Expert”/Century 21 Chesser Realty)- http://kellieplace.wordpress.com/2010/12/12/mineral-rights-drive-up-prices-at-broome-county-tax-auction/
- Property owners may make money from leasing to Marcellus Shale gas drillers, and they may also find their property can’t be financed for a new mortgage. From The Pike County Courier: NORTHEAST Pa 11/20/2010. “There are a lot of properties with leases in this area,” Rudalavage notes. She adds, when it comes down to obtaining a mortgage on those properties, “more and more of [the banks] are saying, ‘no, no, no.’” …Wells Fargo would not be inclined to fund a property with a gas lease. In a memo, a top executive at the bank writes it would be “very difficult to obtain financing due to the potential hazard.” The memo continues, “Also if the Gas Leasing is new to the area there are too many unknowns.” One of the unknowns, according to the executive, is what the lease would do to “the marketability of a property.
Split Estate in NY
- Reported from Chenango Co. Bernard. Nov. 4, 2010.There was a real estate supplement in the local paper. There was a Realty USA ad for properties outright-owned by Norse, the local gascorp. They were advertising properties on which they would retain the subsoil rights. Eight or ten big acreages , mostly advertised as farms.Now, I’ll use one of them – which is close to me and which Norse had bought from my town supervisor – as example. The selling price was $1 million for 200 acres, house, barn and access to Kelsey Brook from both sides. According to the happy seller, whose wife is a realtor, three times “what it’s worth”The new price is ~$450,000, of course w/o minerals. No sale at that price, which is more than properties with mineral rights fetch. Supposing no one wants to farm land that will have drilling going on, there or underneath (a permit for a Marcellus vertical well has been applied for). Or be subject to ED for pipelines. When you purchase or lease subsoil rights, that gives you lots of access rights on the surface, no?Supposing they can’t sell it at all? The assessed value on that place has been heretofore based on surface values. If that “surface” can’t be sold, what value does it have in the property tax system? Given constant budgets over the years, any reassessment downwards is going to cost the rest of us.This is an important issue, and I would appreciate input.
- Response Re: “When you purchase or lease subsoil rights, that gives you lots of access rights on the surface, no?” This depends on whether the original owner had a lease with the gas company or whether the new purchaser is inheriting a lease that is still in force–and if so, whether it included any restrictions on surface use and was at all protective in terms of location of infrastructure, road location, water withdrawals, chemical storage, reclamation, etc. etc.
If the company purchases the property outright and the property was never subject to a lease, and the minerals and surface are joint (no split estate), then it’s a free for all except for any restrictions (like minimal setbacks from buildings and streams) that are in state regulations. Same if the property owner fails to have a protective lease that restricts surface use/impacts.
So it’s important that realtors and prospective buyers don’t just ask “is it leased for gas?” but also “what kind of lease is on this property?” and “is the company be willing to enter into a protective lease before development occurs?” One can believe that no lease is a good lease, but when it comes to actual surface impacts and effects on the landowner (and the landowner’s/purchaser’s ability to hold the company liable), then having a restrictive, protective lease can make a big difference.
Marcellus Shale Regional Organizer
Subject: Major Alert: Natural Gas Leasing Impacts on Mortgage Lending
Date: Wed, 18 May 2011 22:18:32 -0400
From: Walter Hang <firstname.lastname@example.org>
To: email@example.com, firstname.lastname@example.org, email@example.com
I am pleased to alert you to a letter that I wrote to Governor Cuomo yesterday. As you will see, I provided him with two key documents that reveal New York bankers are highly concerned about natural gas leasing impacts on mortgage lending.
Due to current lending policies and practices, properties with gas leases might not quality for mortgage loans. Properties might not quality for mortgage loans even if properties with gas leases are located within 200 feet.
Suffice it to say, this issue could have devastating economic effects on homeowners, real estate investors, financial institutions and Wall Street.
Key sections are highlightedto help you wade through the banking jargon and my equally dense prose.
It is more important than ever to ask your Legislators to become signatories to Assemblywoman Lifton’s letter to Governor Cuomo requesting that the scope of the SGEIS be expanded. Use the form letter below.
Finally, we are barely short of 5,000 signatories to the coalition letter that asked Governor Cuomo to expand the scope of the SGEIS. Please beat the bushes to help us reach that goal.
Hold onto your hats. The mortgage loan issue could really pack a wallop. I will keep you apprised.
May 17, 2011
Honorable Andrew M. Cuomo
Governor of New York State
The State Capitol
Albany, NY 12224
Dear Governor Cuomo:
As you will see from the information I am providing for your review, New York lenders are gravely concerned about natural gas leasing potentially reducing property values, threatening the “quiet enjoyment” of homes and preventing the granting of mortgage loans in our state.
That is why I write to request that you immediately expand the scope of the Marcellus Shale Supplemental Generic Environmental Impact Statement (SGEIS) to address gas leasing impacts onhomeowners, real estate investors and financial institutions.
Given the wide-ranging economic implications of these mortgage lending concerns, this issue warrants your urgent, top priority attention. I believe it is imperative that all lending concerns be fully resolved by your administration’s efforts to revise the draft SGEIS’ fundamental shortcomings pursuant to Executive Order No. 41.
*March 24, 2011 Memorandum: Gas and Oil Leases Impact on Residential Lending*
This document is a detailed, self-explanatory memorandum circulated by a Vice President for Residential Mortgage Lending at the Tompkins County Trust Company headquartered in Ithaca, NY. It notes:
*”Gas/oil leases are generally NOT (emphasis in the original) accepted by lenders such as Wells, First Place Bank, Provident Funding, GMAC, FNCB, Fidelity, FHA, First Liberty or Bank of America. It would be difficult, if not impossible, to the meet the ‘acceptable if commonly granted’ rule.”
*”Surface or sub surface rights within 200 feet of a residential structure would not be acceptable for conventional financing in the Secondary market.”
*”NYS title insurance gas endorsements specifically void title insurance coverage if the premises are used for any commercial venture.”
*”Lenders are responsible to warrant several items to the investor in the Secondary market that can not be done leaving lenders with significant liability.”
*”Surface or sub surface rights within 300 feet of a residential structure OR within 300 feet of property boundary lines would not be acceptable for FHA [Federal Housing Administration] (Department of HUD [Housing and Urban Development]) financing.”
*These PowerPoint slides summarize a wide array of mortgage lending issues.*
According to slide nine: “Legal Issues
*- Executing a lease or easement may have the potential to restrict the property from being sold, building… (emphasis added)” *
According to slide 15: “- Residential Lending Issues
– Secondary Market Requirement:
– Title insurance endorsements required to affirmatively insure the lender against damage or loss due to exercise of drilling rights
– NYS title insurance comprehensive endorsement contains the following restrictions that would likely void coverage if they exist:
– No structures over 35 feet tall on premises
– No storage of any material, machinery, equipment or supplies on premises
– Premises shall not be used for any commercial purposes
– *All allowed in typical gas lease – coverage likely void (emphasis added).”*
Natural gas leasing could have staggering implications for New York’s lenders, homeowners and real estate investors given the potential scope of horizontal hydrofracturing in our state’s Marcellus Shale formation. Current lending policies and practices can preclude existing/potential homeowners and property investors from purchasing or selling real estate with gas leases due to the inability to obtain mortgage loans. Even properties located near parcels with gas leases might not qualify for mortgage loans due to “secondary” market requirements.
Individuals who have signed gas leases very likely had no inkling of these onerous implications. There has been extensive discussion of the alleged economic benefits of gas drilling in New York. The banking documents I am providing raise profound concerns that gas leasing could impair the state’s mortgage lending and real estate markets. Even Wall Street’s securitization of bundled mortgage loans could be impacted.
Nearly 5,000 elected officials, business owners, farmers, civic and environmental groups, citizens, students and religious leaders are signatories to a coalition letter requesting that you require immediate public comment regarding expanding the scope of the SGEIS to include key concerns that were excluded from the scope of the proceeding when it began more than three years ago.
A total of 62 legislators, including Democrats and Republicans in the Assembly and State Senate, have similarly written you in that regard. See:http://www.toxicstargeting.com/MarcellusShale/documents/letters/2011/04/13/assembly
To date, you have not provided a favorable reply to these requests.
In the more than three years that shale gas horizontal hydrofracturing has been discussed in New York State, I had not seen a single word written about mortgage lending impacts until I read the documents I am providing for your review. That scenario underscores why you must require immediate public comment to identify all other issues that your administration should address as the draft SGEIS is revised pursuant to Executive Order No. 41. Please afford the public a comment period without further delay.
Thank you for your consideration. Please do not hesitate to contact me if you have any questions that I might be able to answer regarding my request.
Very truly yours,
*Legislative Letter Requesting That Governor Cuomo Expand the Scope of the SGEIS
*Please ask your legislators to become signatories to Assemblywoman Barbara Lifton’s letter requesting that Governor Cuomo provide an immediate public comment period about expanding the scope of the SGEIS. This letter has 62 signatories, including Democrats and Republicans in the Assembly and State Senate. Getting at least 100 signatories might generate a favorable reply.
Use this request letter: http://www.toxicstargeting.com/MarcellusShale/lifton_letter/request
Representative Lifton’s self-explanatory letter is posted at: http://www.toxicstargeting.com/node/5826
*Take Action Today!
*Drum up more signatories to the Governor Cuomo coaltion letter, particularly groups and elected officials. We are verging on 5,000 signatories.*
C**all and email Governor Cuomo, EPA Regional Administrator Enck, DEC Commissioner Martens and New York City Mayor Bloomberg. Request that they support:
*Providing at least 30 days immediate public comment to identify additional issues that must be included in the draft SGEIS scope;
Expanding the scope of the draft SGEIS to include additional concerns, notably how to manage gas drilling wastewater;
Establishing Citizens and Technical Advisory Committees to help DEC revise the draft SGEIS;
Requiring individual EIS reviews for horizontal hydrofracturing permits, *”GA effluent limitations” for hydrofracturing, deep well injection and wastewater treatment *as well as updating DEC’s 1992 GEIS.
* *Governor Andrew Cuomo*
* *EPA Regional Administrator Judith Enck*
* *DEC Commissioner Joseph Martens*
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