QUESTION — Does natural gas leasing hurt property values?

ANSWER – There is some damning evidence that it does. 

Walter Hang of Toxics Targeting joined us on the Capitol Pressroom last Friday 5/20 to discuss this issue. He spoke with several banking institutions about their rules surrounding lending money for both residential and commercial land investment, and the results are on his website.   

Here are the highlights:

– “Gas/oil leases are generally NOT (emphasis in the original) accepted by lenders such as Wells, First Place Bank, Provident Funding, GMAC, FNCB, Fidelity, FHA, First Liberty or Bank of America. It would be difficult, if not impossible, to the meet the ‘acceptable if commonly granted’ rule.”

– “Surface or sub surface rights within 200 feet of a residential structure would not be acceptable for conventional financing in the Secondary market.”

– “NYS title insurance gas endorsements specifically void title insurance coverage if the premises are used for any commercial venture.”

– “Lenders are responsible to warrant several items to the investor in the Secondary market that can not be done leaving lenders with significant liability.”

– “Surface or sub surface rights within 300 feet of a residential structure OR within 300 feet of property boundary lines would not be acceptable for FHA [Federal Housing Administration] (Department of HUD [Housing and Urban Development]) financing.”

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On Monday I confirmed that Assemblymember Barbara Lifton was so concerned about how gas leasing might affect land values in Tompkins County, that she met with three members of the Governor’s staff to bring them up to date:  Jim Malatras, Tony Giardina and Tom Congdon.  I still haven’t had any confirmation from the Governor’s office.  I am also still waiting to hear what they intend to do about this issue.

According to Lifton, gas drillers – at one time –  did let people bow out of their leases if they were looking to move and borrow money.  But those days are over.  Now that the industry is required to have leases on 60% of all land within a ”spacing unit” it has been hesitant to allow land owners out of those leases. 

Lifton will join me on The Capitol Pressroom tomorrow, Tuesday 5/24 from 11:06am – 11:18am to discuss this issue, as well as her conversation with members of the Cuomo administration. 

SHOULD THE DEC’S SGEIS BE REOPENED TO INCLUDE LAND VALUES IN THE IMPACT STATEMENT?

Below is the letter that Walter Hang sent to the administration regarding this issue:

Letter to Governor Cuomo Regarding Natural Gas Leasing Impacts on Mortgage Lending

May 17, 2011

Honorable Andrew M. Cuomo
Governor of New York State
The State Capitol
Albany, NY 12224

Dear Governor Cuomo:

As you will see from the information I am providing for your review, New York lenders are gravely concerned about natural gas leasing potentially reducing property values, threatening the “quiet enjoyment” of homes and preventing the granting of mortgage loans in our state.

That is why I write to request that you immediately expand the scope of the Marcellus Shale Supplemental Generic Environmental Impact Statement (SGEIS) to address gas leasing impacts on homeowners, real estate investors and financial institutions.

Given the wide-ranging economic implications of these mortgage lending concerns, this issue warrants your urgent, top priority attention. I believe it is imperative that all lending concerns be fully resolved by your administration’s efforts to revise the draft SGEIS’ fundamental shortcomings pursuant to Executive Order No. 41.

March 24, 2011 Memorandum: Gas and Oil Leases Impact on Residential Lending

This document is a detailed, self-explanatory memorandum circulated by a Vice President for Residential Mortgage Lending at the Tompkins County Trust Company headquartered in Ithaca, NY. It notes:

  • “Gas/oil leases are generally NOT (emphasis in the original) accepted by lenders such as Wells, First Place Bank, Provident Funding, GMAC, FNCB, Fidelity, FHA, First Liberty or Bank of America. It would be difficult, if not impossible, to the meet the ‘acceptable if commonly granted’ rule.”
  • “Surface or sub surface rights within 200 feet of a residential structure would not be acceptable for conventional financing in the Secondary market.”
  • “NYS title insurance gas endorsements specifically void title insurance coverage if the premises are used for any commercial venture.”
  • “Lenders are responsible to warrant several items to the investor in the Secondary market that can not be done leaving lenders with significant liability.”
  • “Surface or sub surface rights within 300 feet of a residential structure OR within 300 feet of property boundary lines would not be acceptable for FHA [Federal Housing Administration] (Department of HUD [Housing and Urban Development]) financing.”

See: http://toxicstargeting.com/sites/default/files/pdfs/TTC-Gas-Res-Lend-HL.pdf

PowerPoint Presentation

These PowerPoint slides summarize a wide array of mortgage lending issues.

According to slide nine: Legal Issues

  • “Executing a lease or easement may have the potential to restrict the property from being sold, building… (emphasis added)”

According to slide 15: Residential Lending Issues

  • “Secondary Market Requirement:
  • Title insurance endorsements required to affirmatively insure the lender against damage or loss due to exercise of drilling rights
  • NYS title insurance comprehensive endorsement contains the following restrictions that would likely void coverage if they exist:
  • No structures over 35 feet tall on premises
  • No storage of any material, machinery, equipment or supplies on premises
  • Premises shall not be used for any commercial purposes
  • All allowed in typical gas lease – coverage likely void (emphasis added).”

See: http://toxicstargeting.com/sites/default/files/pdfs/110512_tompkins_trus…

Conclusion

Natural gas leasing could have staggering implications for New York’s lenders, homeowners and real estate investors given the potential scope of horizontal hydrofracturing in our state’s Marcellus Shale formation. Current lending policies and practices can preclude existing/potential homeowners and property investors from purchasing or selling real estate with gas leases due to the inability to obtain mortgage loans. Even properties located near parcels with gas leases might not qualify for mortgage loans due to “secondary” market requirements.

Individuals who have signed gas leases very likely had no inkling of these onerous implications. There has been extensive discussion of the alleged economic benefits of gas drilling in New York. The banking documents I am providing raise profound concerns that gas leasing could impair the state’s mortgage lending and real estate markets. Even Wall Street’s securitization of bundled mortgage loans could be impacted.

Nearly 5,000 elected officials, business owners, farmers, civic and environmental groups, citizens, students and religious leaders are signatories to a coalition letter requesting that you require immediate public comment regarding expanding the scope of the SGEIS to include key concerns that were excluded from the scope of the proceeding when it began more than three years ago.

See: http://www.toxicstargeting.com/MarcellusShale/cuomo/coalition_letter

A total of 62 legislators, including Democrats and Republicans in the Assembly and State Senate, have similarly written you in that regard. See:http://www.toxicstargeting.com/MarcellusShale/documents/letters/2011/04/13/assembly

To date, you have not provided a favorable reply to these requests.

In the more than three years that shale gas horizontal hydrofracturing has been discussed in New York State, I had not seen a single word written about mortgage lending impacts until I read the documents I am providing for your review. That scenario underscores why you must require immediate public comment to identify all other issues that your administration should address as the draft SGEIS is revised pursuant to Executive Order No. 41. Please afford the public a comment period without further delay.

Thank you for your consideration. Please do not hesitate to contact me if you have any questions that I might be able to answer regarding my request.

Very truly yours,

Walter Hang