Does Natural Gas Leasing Hurt Property Values?
QUESTION — Does natural gas leasing hurt property values?
ANSWER – There is some damning evidence that it does.
Walter Hang of Toxics Targeting joined us on the Capitol Pressroom last Friday 5/20 to discuss this issue. He spoke with several banking institutions about their rules surrounding lending money for both residential and commercial land investment, and the results are on his website.
Here are the highlights:
– “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.”
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On Monday I confirmed that Assemblymember Barbara Lifton was so concerned about how gas leasing might affect land values in Tompkins County, that she met with three members of the Governor’s staff to bring them up to date: Jim Malatras, Tony Giardina and Tom Congdon. I still haven’t had any confirmation from the Governor’s office. I am also still waiting to hear what they intend to do about this issue.
According to Lifton, gas drillers – at one time – did let people bow out of their leases if they were looking to move and borrow money. But those days are over. Now that the industry is required to have leases on 60% of all land within a ”spacing unit” it has been hesitant to allow land owners out of those leases.
Lifton will join me on The Capitol Pressroom tomorrow, Tuesday 5/24 from 11:06am – 11:18am to discuss this issue, as well as her conversation with members of the Cuomo administration.
SHOULD THE DEC’S SGEIS BE REOPENED TO INCLUDE LAND VALUES IN THE IMPACT STATEMENT?
Below is the letter that Walter Hang sent to the administration regarding this issue:
Letter to Governor Cuomo Regarding Natural Gas Leasing Impacts on Mortgage Lending
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 on homeowners, 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.”
See: http://toxicstargeting.com/sites/default/files/pdfs/TTC-Gas-Res-Lend-HL.pdf
PowerPoint Presentation
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).”
See: http://toxicstargeting.com/sites/default/files/pdfs/110512_tompkins_trus…
Conclusion
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.
See: http://www.toxicstargeting.com/MarcellusShale/cuomo/coalition_letter
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,
Walter Hang
26 Comments to “Does Natural Gas Leasing Hurt Property Values?”
Add Comments (+)-
Anne Ryan says:
I was fortunate to hear the excellent interview with Walter Hang. Thank you so much for doing this very important coverage. I appreciate the quality and depth of your news stories.
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jean hricik says:
thank you for providing a forum for the articulation of the impact of nautral gas drilling leases on property value.
a diverse conversation of the pros and cons of drilling has been suspiciously absent.
when politicians say they will use “scientific information” in determining viability of gas drilling, it seems to include the physical, technical act of drilling, rather than the impact on people, environment, and economic issues of real people.
for example, we have heard woefully little about the the number of physicians and medical associations who warn against marinating people in the drilling culture due to the harm to health.
again, thank you, jean hricik
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thank you for highlighting the effect of fracking on property values.
the conversation of the pros and cons of this industry have been lacking.
we have heard little about the MD’s and medical associations that have warned about the health risks of marinating people in the culture of fracking.
again, thank you.
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J. Delman says:
Thanks so much for covering the problems with gas drilling!
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Lesley Adams says:
Thank you so much for helping to bring this information to the attention of the public. The people of New York State need to alerted to all the dangers of hydrofracking. With luck, good communication, and diligent lobbying, we won’t end up like Pennsylvania!
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Barbara Andersen says:
Susan Arbetter,
Thank you for including in your blog, Walter Hang’s letter to Governor Cuomo regarding the issue of gas leasing impacts on mortgage lending. And thank you also for your efforts to alert the Capitol about our concerns on shale gas matters.
Barbara Andersen, resident of Tompkins County -
Gerrit Crouse, PhD says:
As an emeritus member of the American Institute of Biological Sciences (AIBS), I thank you for breaking this news story. I hope the bizarre technology known as hydraulic fracturing (‘fracking”), which injects quantities of water with diesel fuel & other chemical poisons into the water table to force out natural gas, with bitter consequences, documented in the recent /NY Times/ expose & the film “Gasland”, & now daily in local newspapers & blogs–is permanently banned in the US.
If al Quaeda fracked us, we’d bomb somebody. Sociopathic profiteers use the words “economic development” in the way the armed forces use “soft ordnance” to indicate corpses of young Americans in body bags.
References:
“Summary for Decision-makers”, /Millennium Ecosystem Assessment Synthesis/ (Washington, DC: Island Press, 2005).
http://www.globalchange.gov/usimpacts
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K Rousseau says:
Dear Ms. Arbetter-
Thank you for bringing these issues to light. I have several friends who have been unable to sell their property (and therefore to move, for career and personal reasons) due to gas leases that they signed without understanding the consequences. I am lucky; when a gas lease on a property I had bought ran out, I chose not to renew it. That was before the dangerous aspects of hydrofracking were known, so I feel doubly blessed that I now live on a piece of land which is somewhat protected from the potential damages of this dangerous, toxic practice. (I love the quote above that says “economic development” (in the mouths of gas company officials) is similar to dead American soldiers.) Truly, we risk the safety of our land, food, water, as well as noise and other pollutions if we allow “fracking” in New York. While we (the US, New Yorkers) surely want energy independence, it is not worthwhile to do it at the risk of these many dangers and environmental poisons. Thank you again for your attention to this important current topic in New York.
Sincerely,
K Rousseau
Broome County -
Kara Emmons says:
Dear Ms.Arbetter,
I would like to Thank you very much for your for your breaking news coverage on shale gas matters. Keep up the great work!!!
Thank you,
Kara -
Susan Mosher says:
Thank You Susan Arbetter for helping to open up New Yorkers eyes to the reality of hydrofracking. You are a knowledgable woman who is unafraid to speak the truth, which we all have a right to hear.
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ron wish md says:
thanks for the important information
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Barbara Heywood says:
The Capitol Pressroom is a must-listen program for me everyday. Your interviews are tops – hitting all the issues and views in an objective manner.
Especially appreciated are the talks about natural gas leasing and drilling.
You always bring to light some viewpoint which is important to understand – on both sides of any issue. Here in Tioga County the illusion of profits still seems to outweigh the real dangers to our environment.
Thanks for bringing Albany to us. -
Thank you for your coverage on hydrofracking and it affects on the secondary mortgage market.
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Gas drilling has been one of the most overlooked points in the economy, especially as the gas and oil prices are rising like a tsunami now. Thanks for the post and clearing up some of the issues on this front!
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Walter Hang has NO background in property valuation. He does have background in obstruction of gas development.
As a former appraiser, assessor and realtor I can tell you that if the state restricts access to the full bundle of rights conveyed by a fee simple deed then it will be the STATE that is de-valuing the properties, not the gas development.
And in that case it will become a ‘taking’ and full compensation will be required by the US Constitution.
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Robert Cahalan says:
What a bunch of nonesense. Not one case of hydro-facking causing groundwater contaimation in the 60 YEARS it has been used. The film gasland is pure fantasy and full of lies and distortions. We will have gas drilling and will have it soon, it will be an economic shot in the arm for NY and it is extremely clean and safe to extract.
I REPEAT NOT ONE CASE OF GROUNDWATER CONTAMINATION FROM HYDRAULIC FRACTURING. NOT ONE !!!!!
SOME PEOPLE JUST NEED SOMETHING TO COMPLAIN ABOUT – ESPECIALLY WHEN THEY SEE LANDOWNERS WILL MAKE $$ AND THEY WILL NOT !!!
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just sayin says:
there are 5408 NY wells in the DEC database with Medina listed as objective formation, certainly a high percentage of these wells are on mortgaged property, and almost all of them were fracced, this did not result in a decline in property values in Chautauqua County or other Medina territory over the past 50 years, nor create an impediment to lending, so Hang’s argument is proven to be specious by historical fact
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Mike Hang says:
Walter Hang and The Duhthica NY, crowd are plain and simle anti gas obstuctionist who spread fear and misinformation to further their lost cause.
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Professer Mark Gaffeney says:
I find statements in this article to be mis leading to the public and shameful to the anti gas crowd. the lost in Value to homes around the country are do to the economy and are not related to drilling at all
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Water Hang must be really DESPERATE!
The scope of the SGEIS was clearly defined after the DEC held 4 public hearings, in addition to ex officio hearings being held around the southern tier such as the one at Hunt Union SUCO, to gather public comment.
Clearly, that was the time to suggest that property value should somehow be an issue in environmental regulation.
Hang is so far out of his element here it is painful to listen to. -
Ourland says:
Interesting I noticed the thank you notes flowed as if a fan club or first grade teacher request the kids to take a few minutes and write a note to thank the presenter.
Ouland
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tom marion says:
Thank you for your help getting the word out against gas fracking. Our democracy depends on FULL disclosure. Your thoughtfulness is very appreciated.
tom marion
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forestowner says:
Walter Hang did not gather much, if any, of this information himself personally, but, rather, used the public local government sources of this information. Which is completely legitimate. For more info, in a more technical form, see: http://www.tompkins-co.org/tccog/Gas_Drilling/Focus_Groups/LandValues_Assessment.html For a news story on the actions of the local government officials to bring this information to appropriate State authorities, see: http://www.lansingstar.com/news-archive/7334-county-work-group-urges-state-to-address-gas-drillings-effects-on-real-estate
This is not necessarily an appropriate topic for the DEC’s Environmental Impact Statement review under NYS’s SEQRA (State Environmental Quality Review Act) process. It is about economic, not environmental, impacts. But, it is well worth looking at closely and clearly. An acquaintance of mine– a 30 year veteran of the oil and gas industry, and a Texan– put it succinctly: as the mineral rights values of a land parcel rise, the surface rights typically fall. What is needed is a clear accounting of whether the available gas (OVER TIME) has a greater economic value than the homes, farms and forests that are the current primary land use. In Northern Texas, this is a pretty straightforward calculation. In upstate NY, it is not at all as clear. Particularly when you factor in that the large landowners comprise 4-6% of town population, typically, while the vast majority of population may experience the declining residential property land values (with gains going to the 4-6%).
Industrial land uses are not considered compatible with residential and agricultural land uses in most instances. As a particularly heavy and impactful industrial land use, it is absurd to assume that there will be no negative impact on residential and farming properties– even if lenders, insurers and mortgage guarantee companies didn’t have the good sense to protect their interests in real property to the extent feasible (and, you know, as fracking becomes more prevalent, they may well move to stricter rules, too). The environmental impacts of fracking must be soberly considered, but, the economic impacts must also be tallied in some reasonable way. It is ridiculous to take the approach that jobs and wealth will only be added and there will be no subtraction or substitution effect whatever. People just don’t vacation in Northern Texas to see the gas wells, share hotels with the transient roughnecks, and enjoy the industrial scenery. Cows won’t get the watersource protections that the Syracuse and NYC drinking water supplies get, and may just die or stop delivering healthy calves. We need to CHOOSE the industries we want in NY; and some we can have residential communities alongside, others, not so much. -
Tim Ruggiero says:
My home and property are in north Texas, on top of the Barnett Shale. Texas is one many states that falls under the ‘split estate’ law where minerals are separate from surface, and can and often sold separately.
My wife and I bought our home on 10 acres in 2004 for $250,000 and then invested another $50,000 in it with fencing, landscaping and a horse barn. In September of 2009, we found out the hard way what it means NOT to be the mineral right owner. The mineral right owner leased his minerals to a substandard gas exploration company, Aruba Petroleum without our knowledge or notification. While we were at work is when my wife got a call from the neighbor informing her that (Aruba) just cut a 100 foot long hole in the pipe and cable fence and started bulldozing the property.
We had the home appraised once before to take advantage of low interest rates for refinancing, and that appraisal was more than $300,000. We had another appraisal done in December of 2009, and this time, our property was now worth $78,000.
We also have conducted numerous environmental testing on the property, both pre-drilling well water tests as well as post-drilling water tests. The first pre-drill test showed the water to be virtually crystal clear. The second, post-drilling, showed the presence of drilling chemicals.
I’ve lost count of how many leaks and multi-thousands gallon spills of drilling mud and toxic water have occurred. In June of 2011, Aruba installed a compressor station on my neighbor’s property, about 600 feet outside our front door. It’s like listening to a semi truck run 24/7. This month, just a few weeks ago, Aruba installed another compressor station on our property, near the 4 condensate tanks. It is extremely noisy all around our home.
The purpose of the compressor station is to ‘lift’ the gas-essentially pulling it from the well because as we all know, the average life span of a gas well is 5-7 years. Since Aruba is a substandard operation, they very often drill where ever they can, which is more often than not, an area where the big energy companies have passed by. Devon, Chesapeake, Range Resources and others couldn’t be bothered with drilling wells just a few hundred feet away from homes. I’m surmising they came to the same conclusion as I did; That the bad publicity and beat down they would take in the press was not worth what they would get in gas. Aruba apparently didn’t see it this way, as more often than not, they like to set up their drill sites very close to homes, preferably in the unincorporated areas so that they don’t have those pesky ordinances to deal with, such as a set-back or noise ordinance.
Aruba showed up again for the 25th time this past Monday, and have a drilling rig and other equipment out on the property in a futile effort to increase the ever dropping production.
So our home, worth as little as $78,000 in December of 2009, now having multiple spills, leaks and ongoing emissions and two obnoxiously loud compressor stations is worth likely ZERO. We are and have been, officially ‘upside down’ on our mortgage through no fault of our own.
Since we haven’t tried for the obvious reasons, I don’t know if we could refinance or borrow money against the mortgage; but the answer tot he question, does natural gas development adversely affect property values? Absolutely, it does.
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I’m not so sure that this has had such an effect on property prices yet. That’s probably due to a lack of public awareness about it. If more people were aware of the problems it probably would have a greater effect on prices. I am very concerned about plans to start using the ‘fracking’ process in North West England whereI live.
Thanks for covering the news on the impact of gas leaking.