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Written by ELISABETH
N. RADOW
Thursday, 15 September 2011 15:29
Stormy waters are brewing. It begins in upstate New York and could spill over into Westchester, the rest of the state, and across the country.
The storm has its source in residential “fracking” – high-volume horizontal hydraulic fracturing for natural gas under people’s homes. Gas drilling companies, which covet the underground gas deposits in New York’s Marcellus Shale, have executed an aggressive land grab for gas leases across the state’s Southern Tier from unsuspecting homeowners for the purpose of fracking. Dangling promises of royalties that can go unfulfilled, the leasing brokers fail to inform homeowners of the heavy industrial, uninsurable risks fracking entails. Based on decades of conventional vertical drilling, homeowners signed preprinted lease agreements without negotiation. Today, these homeowners are trapped indefinitely by leases that give strangers free reign to take over their property while relinquishing basic home ownership benefits they once took for granted.
A program on Tuesday, Oct. 4 at 7 p.m. in the new Mamaroneck Public Library on key issues involving the DEC gas drilling environmental impacts will illuminate how fracking upstate could impact taxpayers in Westchester. Continuing impacts from fracking on Westchester’s drinking water will be discussed, too. The event is sponsored by the League of Women Voters of Larchmont-Mamaroneck. Admission is free.
Since upstate homeowners did not know about the hazards of fracking when they signed the gas leases, it did not occur to them to check their mortgage. Home mortgage loans prohibit heavy industrial activity and hazardous materials on the property. Fracking brings both.
The mortgaged property needs to stay safe and uncontaminated because lenders sell 90 percent of all home mortgage loans to the secondary mortgage market in exchange for funds to make new home loans. Gas leases allow gas companies to truck in tankers with chemicals, transport flammable gas and toxic waste, operate heavy equipment 24/7 and store gas underground, for years, all in a person’s backyard.
Gas leases also create easements which continue after the gas company leaves, with no long-term funds for upkeep. Gas drillers can sell the lease to anyone they choose without telling the homeowner, so there’s no way for a family to control who comes onto their property to drill or the quality of the work they perform. Homeowner’s insurance doesn’t cover the types of industrial risks fracking brings and neither does the gas lease. Homeowners can get slammed with risks for the dangerous activity they don’t even control.
Environmental scientist Ellen Harrison, for example, signed a gas lease in 2008 for her home in Tompkins County, then discovered that she had jeopardized the safety of her home, her family’s health, and the very property values that were the financial foundation of their existence. The lease broker made no mention of fracking, which news reports blame for methane leaks, chemical spills, blowouts, and more. The result is to send property values crashing. Since homeowner’s insurance doesn’t cover casualties from fracking, Harrison would have to successfully sue the gas company, a burden few homeowners can financially or mentally handle.
Plus, legal loopholes might let the gas company off the hook. Industrial-sized risks are so expensive, even gas companies can’t get fully insured for them. Residential fracking brings heavy industrial risks and the ripple effects could be of hurricane proportions. As fracking spreads across 34 shale-rich states, the $6.7 trillion secondary mortgage market – which holds 90 percent of the nation’s home mortgage debt – could get left bearing the liability; American taxpayers are next in line. Westchester is included.
Armed with new resolve in the wake of the last mortgage meltdown and common sense lending guidelines, a growing number of banks won’t give new mortgage loans on homes with gas leases because they don’t meet secondary mortgage market guidelines. This is so even before the drilling begins. As a result, homeowners with a gas lease can be out of luck selling their homes since the lease impacts stick with the property. Banks wouldn’t lend to their buyer either. The impact of this perfect storm falls not only on homeowners and taxpayers but also affects the banking, housing, insurance and secondary mortgage market interests and their investors. New construction, the sign of economic recovery, won’t start where residential fracking goes on, because construction loans require a property to be free of the very risks that gas drilling brings. For all New Yorkers seeking the return of a healthy state economy, this shift of drilling risks from the gas companies to the housing sector, homeowners and taxpayers begs for immediate attention.
Elisabeth Radow, Esq. is an attorney at Cuddy & Feder LLP in White Plains. Radow chairs the statewide League of Women Voters hydraulic fracturing committee. Radow’s in-depth article on this topic appears as the cover story of the November/December issue of the New York State Bar Association-NYSBA Journal Magazine.
Thursday, 15 September 2011 15:29
Stormy waters are brewing. It begins in upstate New York and could spill over into Westchester, the rest of the state, and across the country.
The storm has its source in residential “fracking” – high-volume horizontal hydraulic fracturing for natural gas under people’s homes. Gas drilling companies, which covet the underground gas deposits in New York’s Marcellus Shale, have executed an aggressive land grab for gas leases across the state’s Southern Tier from unsuspecting homeowners for the purpose of fracking. Dangling promises of royalties that can go unfulfilled, the leasing brokers fail to inform homeowners of the heavy industrial, uninsurable risks fracking entails. Based on decades of conventional vertical drilling, homeowners signed preprinted lease agreements without negotiation. Today, these homeowners are trapped indefinitely by leases that give strangers free reign to take over their property while relinquishing basic home ownership benefits they once took for granted.
A program on Tuesday, Oct. 4 at 7 p.m. in the new Mamaroneck Public Library on key issues involving the DEC gas drilling environmental impacts will illuminate how fracking upstate could impact taxpayers in Westchester. Continuing impacts from fracking on Westchester’s drinking water will be discussed, too. The event is sponsored by the League of Women Voters of Larchmont-Mamaroneck. Admission is free.
Since upstate homeowners did not know about the hazards of fracking when they signed the gas leases, it did not occur to them to check their mortgage. Home mortgage loans prohibit heavy industrial activity and hazardous materials on the property. Fracking brings both.
The mortgaged property needs to stay safe and uncontaminated because lenders sell 90 percent of all home mortgage loans to the secondary mortgage market in exchange for funds to make new home loans. Gas leases allow gas companies to truck in tankers with chemicals, transport flammable gas and toxic waste, operate heavy equipment 24/7 and store gas underground, for years, all in a person’s backyard.
Gas leases also create easements which continue after the gas company leaves, with no long-term funds for upkeep. Gas drillers can sell the lease to anyone they choose without telling the homeowner, so there’s no way for a family to control who comes onto their property to drill or the quality of the work they perform. Homeowner’s insurance doesn’t cover the types of industrial risks fracking brings and neither does the gas lease. Homeowners can get slammed with risks for the dangerous activity they don’t even control.
Environmental scientist Ellen Harrison, for example, signed a gas lease in 2008 for her home in Tompkins County, then discovered that she had jeopardized the safety of her home, her family’s health, and the very property values that were the financial foundation of their existence. The lease broker made no mention of fracking, which news reports blame for methane leaks, chemical spills, blowouts, and more. The result is to send property values crashing. Since homeowner’s insurance doesn’t cover casualties from fracking, Harrison would have to successfully sue the gas company, a burden few homeowners can financially or mentally handle.
Plus, legal loopholes might let the gas company off the hook. Industrial-sized risks are so expensive, even gas companies can’t get fully insured for them. Residential fracking brings heavy industrial risks and the ripple effects could be of hurricane proportions. As fracking spreads across 34 shale-rich states, the $6.7 trillion secondary mortgage market – which holds 90 percent of the nation’s home mortgage debt – could get left bearing the liability; American taxpayers are next in line. Westchester is included.
Armed with new resolve in the wake of the last mortgage meltdown and common sense lending guidelines, a growing number of banks won’t give new mortgage loans on homes with gas leases because they don’t meet secondary mortgage market guidelines. This is so even before the drilling begins. As a result, homeowners with a gas lease can be out of luck selling their homes since the lease impacts stick with the property. Banks wouldn’t lend to their buyer either. The impact of this perfect storm falls not only on homeowners and taxpayers but also affects the banking, housing, insurance and secondary mortgage market interests and their investors. New construction, the sign of economic recovery, won’t start where residential fracking goes on, because construction loans require a property to be free of the very risks that gas drilling brings. For all New Yorkers seeking the return of a healthy state economy, this shift of drilling risks from the gas companies to the housing sector, homeowners and taxpayers begs for immediate attention.
Elisabeth Radow, Esq. is an attorney at Cuddy & Feder LLP in White Plains. Radow chairs the statewide League of Women Voters hydraulic fracturing committee. Radow’s in-depth article on this topic appears as the cover story of the November/December issue of the New York State Bar Association-NYSBA Journal Magazine.
How Marcellus Shale Gas Drilling
Will Depress Your Property Values
Imagine
this: You lease your land to a gas drilling company, then, before or after drilling, you decide that you want
to sell your land. You find plenty of prospective buyers---the problem is that none of them can find a bank to finance a mortgage,
because most banks and insurance companies consider gas-leased land to be an unacceptable risk.
Where does this leave you? Most likely stuck. And what does it do to the
value of your property? Most likely depreciate it, and the value of neighboring properties, too.
Or, imagine this: You have not leased your
property, but your neighbors have, and---because your property is within 300 feet of theirs---banks also balk at financing
your property---because of volatile property values and environmental hazards.
Or, Imagine this: You own a farm or a lake
cottage in an area where gas drilling is taking place and the value of your home and land has become so depreciated by the
number of unmortgageable properties around you that your investment is no longer worth what you owe on it.
These are not just hypothetical examples. Ask your local bank
or credit union.
FHA, HUD, GMAC
and most major banks and credit unions hold exactly these policies on gas-leased property and the properties near them.
Reportedly, Wells Fargo, First Place, Fidelity, First Liberty
and Bank of America all consider financing such mortgages excessively risky.
HUD, for instance (in its Handbook, 4150.2, page 2.7) puts it this way:
Operating and abandoned oil and gas
wells pose potential hazards to
housing, including potential fire, explosion, spray and other pollution.
No existing dwelling may be located
closer than 300 feet from an active
or planned drilling site. Note that this applies to the site boundary, not to the actual well site.
The appraiser must
examine the site for the existence of or any readily observable evidence of a well.
As Yates County Attorney George Mathewson points out:
“An upstate Federal Credit Union now states its policy regarding refinancing
on properties on which there are gas leases (as opposed to active gas wells), as:
‘l. If there is an oil and gas lease on your
property, Visions will not give you a mortgage loan secured by your property. . . . If you presently have a mortgage with
Visions Federal Credit Union and you subsequently enter into an oil or gas lease after September 14, 2009, then Visions Federal
Credit Union, may require you to pay the balance of the loan in full pursuant to the terms of the existing note and mortgage.
Please note that Visions Federal Credit Union will not sign a Subordination Agreement or other consent to lease with an oil
or gas company.’
“For anyone trying to sell property in leased
or drilled areas, if the buyers cannot obtain mortgage financing, this will eliminate 90% of the potential purchasers. And
if the demand for the property drops drastically as a result of the unavailability of mortgages, then the price will also
drop accordingly.”
Two other factors
further complicate this risk to landowners, “Horizontal Drilling” and “Compulsory Integration.”
Horizontal Drilling --- While
gas companies claim that they will only need one drilling pad per square mile, many landowners do not realize that that may
include as many as 12 horizontal gas wells emanating from each single pad, or that those horizontal wells extend as far as
a mile in all directions to make sure that the entire square mile will be exploited.
Each of these square mile coverages is called a ”unit.”
Compulsory Integration --- Within each
“unit,” if 60% of the land is leased, then the remaining 40% of land can be taken and drilled---under the legal
concept of “Compulsory Integration” ---even if that 40% who have not signed are opposed to drilling.
It’s true that victims of compulsory integration can
only have gas sucked out from under their land, but cannot be trespassed upon on the surface without their permission. And
it’s also true that such non-leasers still have to be duly compensated for any gas taken. However, what is not mentioned
in cases of compulsory integration is that the non-leased land is also devalued---still considered damaged goods by
banks and insurance companies when those unwilling parties seek financing or insurance.
In addition, long past any temporary uptick in housing values to accommodate incoming
workers, that surplus housing meant to meet the temporary need will be added to the mortgage slowdown---even further glutting
the housing market and depressing property values as soon as the majority of those transient workers hits the road.
Bottom Line --- Without a doubt, massive
gas-leasing will inevitably lead to serious property devaluation and property tax decreases throughout our region.
Time is running
out. The gas companies like to say they’re bringing us a windfall, but if you look at where they’ve been, it looks
more like a tornado has blown through.
The banks and insurance companies know this perfectly well, and that’s why they often consider gas-leased land
too risky to finance.
We need to wake
up. Fight to protect our values (both property and otherwise)---before it’s too late.
---Steve Coffman
Dundee