Update: Official: Mortgage lenders refuse loans on fracked property

by TXsharon on April 4, 2014

in property value

Is your property leased for unconventional drilling and fracking? Sorry, no mortgage for you. Do you have unconventional drilling and fracking as a neighbor? Sorry, your property has been devalued.

US Finance Post: Mortgages and Hydraulic Fracturing
Reporter: Jayson Derrick April 3, 2014

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.

Mortgage institutions are refusing mortgages on properties that are leased for unconventional drilling and fracking and on properties with wells on them.

It seems they don’t care much for the split estate either.

…the combination of property rights on the surface and drilling rights underground is one that does not work.

RuggieroHouseCrop
Tim and Christine’s home (picture) was devalued 75%.

In Argyle, TX, the Sizeloves home was valued at $361,000 on the 2009 tax rolls and was valued at $95,000 on the 2010 tax rolls.

In Arlington, Kim Feil’s home was devalued 30% because she has a facility 1/2 mile away.

Did you work hard to buy your home hoping to grab a small slice of the American pie? Sorry, but…

you’ve been fracked!

Expect things to get worse with each LNG export permit that gets approved.

Right after I posted this, I received a new article to be published in the Albany Law Review.

UPDATE to add this new research:

At the Intersection of Wall Street and Main: Impacts of Hydraulic Fracturing on Residential Property Interests, Risk Allocation, and Implications for the Secondary Mortgage Market

A few of the many interesting points:

  • A lease diminishes a home’s market value.
  • An apparent nexus between gas drilling operations and contaminated water diminished value.
  • Structural damage to the residence represents another cause for concern.
  • Questions about restoration of property effect long term value because a mortgage lender expects the residence and land to retain its value for the life of the loan.
  • Compulsory integration creates issues that reduce value.

{ 5 comments… read them below or add one }

Bobby Dale April 4, 2014 at 3:50 pm

Aw shucks one little credit union won’t lend to people receiving royalty checks which might allow them to not need the mortgage.

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TXsharon April 4, 2014 at 10:16 pm

News flash: not everyone gets royalties and even when they do they may not be enough to cover the property devaluation or the medical bills.

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Anymous April 4, 2014 at 8:55 pm

This is an excellent post. But, know that in Booger County, the appraisal board does not consider such devaluation as a factor in determining residential tax amounts! They use a Mass Appraisal system which basically, has littler or nothing to do with fair market value. If you oppose them, they will use the system in very unusual ways to jack up your taxes!! I know, been there!

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Old Bob April 14, 2014 at 1:06 am

Don’t forget homeowner insurance, which goes hand in hand with mortgages and homeownership. The insurance companies are focused on minimizing risks and maximizing their profit. Damages related to fracking operations like using heavy equipments to prepare pad sites, massive trucks to haul equipments and fracking chemicals and waste products must pose RISKS to homes being insured, not counting the obvious like damage to foundations and structures related to such earth shaking activities and those pesky earthquakes that damage other insured properties in the home as well. Oh yea, the occasional explosions from gas pipelines, well sites, and truck accidents, etc.

Insurers might jack up premiums, add riders specifying fracking, or decline coverage all together. No insurance, probably means no mortgage, or a policy that is unaffordable and uneconomic for property owners. These were issues that the guy fighting Chesapeake to stop that Carter Street gathering pipeline down his residential street inside an urban Fort Worth neighborhood had raised public attention about during his two years or so fight and victory in forcing Chesapeake to run their massive pipeline away from homes and along the right of way on I-30, which is half a mile away from the nearest homes and neighborhood.

That saved many homes and homeownership all across Fort Worth because Chesapeake would have bullied their way into cramming such dangerous pipelines all over city neighborhoods if that one guy didn’t put up a heck of a fight and won to prevent Chesapeake from pointing to Carter Avenue pipeline as a “precedent” for other “safe” pipelines that would have followed. If my memory serves me, current Democratic candidate for Texas Governor and that man’s state senator Wendy Davis helped pull off that unbelievable victory over the fracking giant by combining her political power with his legal maneuvers (just a layman vs. CHK’s team of high priced lawyers) and activist support. The city of FW, specifically the dirty gassing mayor Mike Moncrief and city council and city officials were acting like they were CHK employees throughout that epic fight. Someone should have made a documentary about that extraordinary chapter in the history of citizens taking on the fracking mafia. And beat them.

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Anymous April 15, 2014 at 11:52 am

Know that in Texas, normal homeowners insurance does NOT pay the homeowner for damages caused by earth movements–which is what causes most damages from O&G operations.

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