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Loss of property values

A Colorado study done in 2001 in La Plata County showed that properties with coal-bed methane gas wells were valued 22 percent less than similar properties without wells. Wells located farther from the center of properties sold within the study area-at distances of greater than 550 feet and up to 2,600 feet-had a modest impact, if any, on the value of the property. The positive effect of nearby wells, a seemingly contradictory result, may have been due to a belief that the property would not be drilled because a well had already been drilled in close proximity- an effect that may not hold in the future.

The so-called "gas zone" is an identifiable sub-area of La Plata County and, according to the realtors, buyers and the agents who represent buyers and sellers, may tend to avoid this area. Perceived direct effects include changes to views, noise, traffic, and-indirectly because of traffic-airborne dust and road damage. According to the interviewees, the risks that surface owners perceive may include groundwater contamination, methane gas seeps, and coal fires.


The Colorado School of Public Health made the following statement regarding oil and gas drilling in Battlement Mesa, CO: "Natural gas development causes a decline in property value, especially during the development phase of the project and land values partially recover when the development phase of a project ends. The development phase for the Antero project in the PUD is expected to last at least 5 years. Land values effects will be impacted by how well other concerns, such as air emissions, traffic, noise and community wellness, are mitigated."


In February 2011, Pennsylvania Dept. of Environmental Protection officials encouraged Jared and Heather McKikens to evacuate their home. Their home is now contaminated with explosive levels of methane gas and their well water is also polluted as a result of nearby natural gas drilling activity. Their home and property value has plummeted 85%, from $250,000 to a value now appraised at $35,000, while the industry player in the area, Chesapeake Energy, gets a free ride.


Mr. McKikens said, "When your house does not have fresh water it's pretty much worthless."


Difficulty selling homes and getting home insurance


Ben Bound's insurance company has threatened to drop coverage. He has thought about simply abandoning his home in Huerfano County since he could not in good conscience sell the property.


In the summer of 2007, methane seeped from Bound's domestic well and exploded inside his pump house. Bounds and his family immediately evacuated the home, and they've had to evacuate many times since when detectors Bounds installed have signaled the presence of methane.


In September 2010, one year to the day after a company set up its drilling rigs on their land in eastern Wise County, Texas, Tim and Christine Ruggiero confirmed the depth of their loss. Originally on the 2010 tax rolls for $257,330, their home and 10-acre horse property are now worth $75,240.


It took the Ruggieros about 30 minutes to present all the significant events, from the day crews moved in without proper agreements to the recent installation of a thermal oxidizer, which continuously burns emissions,leading up to their 10-year-old daughter's health problems.


Some realtors on the Wise County Central Appraisal District Appraisal Review Board said they would neither be able to sell the property, nor even consider listing the property, after hearing the couple's disclosures, including the fact that they had filed a lawsuit against the company for damages. Appraisal district staff members told the board they have decreased values by 75 percent when a gas well sits on the land in such conditions.


They know they need to move in order to protect their daughter's health, Tim Ruggiero said, and that it's possible their credit could be ruined. "The bank could call the note on our home tomorrow," he said, in which case he'd probably hand them the keys to the house.


Calvin Tillman, former mayor of DISH, TX says, "The average person will not purchase the property right next to a well site or compressor. Unfortunately, most of the mineral owners in this area have kept the minerals and moved on to someplace else. However, when they have tried to sell their property with wells and pipelines on them, it has not been successful.


"Another illustration is the gentleman who has had 63 acres for sale now for several years. He purchased the property as an investment, and now has three pipelines and an above ground valve. He can not give this property away. As he reaches retirement age his retirement has been stolen from him. This is no different than Enron or any other scandal, only it has been made legal thievery. There are two other pieces of property that have been for sale for several years, one of which is a large parcel of about 70 acres and the other is about 10 acres."


Calvin Tillman and his wife, Tiffiney, put their family home up for sale after their sons got heavy nosebleeds in 2010. Their home was near a compression complex on the southern end of town.


Difficulty getting mortgages


Fannie Mae and Freddie Mac's standard mortgage agreement, commonly used by lenders, prohibits borrowers from signing gas leases without first obtaining written consent from their local lender, Fannie Mae, or Freddie Mac.

If borrowers fail to get permission from Fannie Mae or Freddie Mac before they sign a gas lease on their mortgaged property, they risk foreclosure.


Some banks have become reluctant to grant mortgages on properties leased for gas drilling. A credit union in upstate New York has started requiring gas companies to promise to pay for any damage caused by drilling that may lead to devaluation of its mortgaged properties. Another will make home loans only to people who expressly agree not to sign a gas lease as long as they hold the mortgage.


More generally, bankers are concerned because many leases allow drillers to operate in ways that violate rules in landowners' mortgages. These rules also require homeowners to get permission from their mortgage banker before they sign a lease -- a fact that most landowners do not know. "Gas/oil leases are generally NOT accepted by lenders such as Wells, First Place Bank, Provident Funding, GMAC, FNCB, Fidelity, FHA, First Liberty or Bank of America."

-- VP Residential Mortgage Lending, Tompkins County Trust Company, 3/24/11

Property owners may make money from leasing. What they may not know is that as long as a lease is intact, they may not be able to mortgage their property.


Broker Lori Rudalavage, who owns LA Mortgage in Clarks Summit, has been trying to sort out the policies being put into place at major banks. It hasn't been easy, and it concerns her. "There are a lot of properties with leases in this area," Rudalavage notes. She adds, when it comes down to obtaining a mortgage on those properties, "more and more of [the banks] are saying, 'no, no, no.'"


"I do believe a lot of people signed leases without knowing it could hurt future selling or financing of the property."


Home equity loans too...


A Cochecton, NY realtor says:  "I had a customer inform me two days ago that the home equity loan they were obtaining in order to purchase a small investment piece near them was turned down by GMAC because their home property was under a gas lease. I dug a little further and found through mortgage brokers that that they are encountering the same reluctance on the part of some local and some bigger banks to lend on leased properties. I hope those who have signed leases have figured this into the equation. A similar example would be as in the case of Flood Zone properties for whom the Flood Insurance program was withdrawn, banks would also not lend on those. In the real estate world, things like this are a huge consideration in factoring property values. Just thought some people might not be aware of this trend by lenders."



Additional References:


Measuring the Impacts of Coalbed Methane Wells on Property Values in SW Colorado

Property Values - Coal Bed Methane in SW CO.pdf


Draft Battlement Mesa Conducted by Colorado School of Public Health, February 2011



Insurance coverage options for fracking risks are limited


Pollution Exclusion in Well Driller's CGL Policy Barred Coverage for Damages


Boom in gas drilling fuels contamination concerns in Colorado


Drilling Pollutes Bradford County Pennsylvania Family's Home and Groundwater


Drilling can dig into land value


VP Residential Mortgage Lending, Tompkins County Trust Company, 3/24/11


New mortgages unavailable for properties with gas drilling leases


Mortgage Troubles on Leased Properties - April 2010


Texas Mayor: Drilling, Barnett Shale, Property Values and More


Cochecton Zoning to Allow Widespread Drilling; Mortgage Troubles on Leased Properties


Rush to Drill for Natural Gas Creates Conflicts With Mortgages


Mortgages and Gas Leases, NY Times



Bankers in Pa. Assess Impact of Natural Gas


Mortgages for Drilling Properties May Face Hurdle


Gas Drillers' Debts Prompt Liens Against Leased Property


BP and Chase at Odds Over Drilling Lease


Gas Pipelines - A Danger?