Legal Conflicts May Exist between Mortgage and Gas Lease

by Dee Fulton on November 29, 2011

Getting ready to sign a gas lease?  Better check with your bank or mortgage lender first.  They may have something to say about it.   The mortgage holders recognize that there is risk of negative impacts to property value associated with fracking.  The idea of an acre-sized pit that holds toxic frack water situated on your land does not thrill them.  Nor the idea that your well water may go all pop and fizzy with methane contamination.  You may be reaping royalties, but you are endangering the value of the property from the banker’s perspective.

This subject was brought up in a New York Times story on October 19th entitled Rush to Drill for Natural Gas Creates Conflicts with Mortgages, by Ian Urbina, the same reporter that raised questions about the radioactivity of shale and the issue of whether or not the value of gas reserves on the company books were being overstated.  A follow-up story in the New York Times appeared on November 24th, Officials Push for Clarity on Oil and Gas Leases. In that story, Urbina writes:

“Leases often allow certain activities, like storing hazardous waste on a property, that are expressly forbidden by mortgages because they can harm  resale values. Such activities also violate rules set by institutions like Fannie Mae, Freddie Mac and Farmer Mac, which buy mortgages from banks.

Banks have become increasingly reluctant to give mortgages for properties with gas leases on them. Lenders have predicted that the conflicts between leases and mortgage rules are not likely to lead to foreclosures, but are likely to result in new rules from local banks and additional hurdles to getting a home loan or refinancing an existing mortgage.”

Fast on the heels of the Oct. 19th New York times story, Maryland’s  Attorney General Douglas F. Gansler warned landowners that signing a mineral rights lease could conflict with some requirements of their federally-approved home or farm mortgage.

Morgantown’s Dominion Post reporter David Beard has been the point person on Marcellus stories for that paper.  He explored to find out if West Virginia banks are experiencing this issue in the story Gas leases affect mortgages elsewhere, reprinted on

“The problems may be creeping closer to this area, but haven’t arrived yet, local bankers say.

The reported effects — banks denying mortgages on gas-leased property, denial of title and homeowner insurances, property appraisals and assessments, and more — are complex and intertwined.”

{ 1 comment… read it below or add one }

Charlie November 30, 2011 at 5:19 pm

You must also consider the insurance company and your health insurance company. I doubt if any of these institutions want a fracked well around their investment. I love this, let the fat cats fight amongst themselves. It is so capitalistic it makes me want to cry!


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