Wednesday
October 22, 2014

Properties' Energy Rights Become Concern for Lenders

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Properties' Energy Rights Become Concern for Lenders

Much of the East Coast oil boom is taking place on properties — often single-family homes and farms — where oil or gas rights have been sold to energy companies, bringing potential riches to some fortunate landowners and headaches to some banks.

At least three lenders are refusing to issue mortgages on such properties. The boilerplate New York state mortgage agreement, used by Fannie Mae and Freddie Mac, states that "you cannot cause or permit any hazardous materials to be on your property, and it specifically references oil and gas," says Greg May, vice president of residential mortgage lending at Tompkins Financial, one of the three firms boycotting such lending. "That alone would make it a problem."

In North Carolina, meanwhile, State Employees' Credit Union and other financial institutions teamed up to pressure state legislators to mandate that home sales contracts include "very clearly stated" language disclosing whether a property's mineral rights had been severed or sold by the land owner. Oil rigs installed on a property would impact nearby homes, according to Jim Blaine, president of the credit union. 

"You could end up where someone puts a drilling platform on that property," he explains.  "We'd have to tell their neighbors, 'We're sorry, your property value just went down.'"

Source: "Fracking Boom Gives Banks Mortgage Headaches," American Banker (11/13/13)

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