An interesting article appeared in the New York Capitol News about fracking and mortgages. A task force was commissioned by Tomkin County to look at Mortgages and Gas Drilling. Click here to read Task Force Report. After reading the report, it got us thinking about what a big issue this will most likely become for many of us living near gas drilling. No. 4 on the list was concerning.
4) Secondary Market requirements state (Freddie Mac guide 39.4 (m)) that lenders must warrant the following, each of which would not be possible with gas/oil leases in place. These leases restrict use of the property by the borrower and there is not reliable data to support what impact a gas lease has on value or marketability:
a. . ..must not interfere with the use and enjoyment of any present or proposed improvements on the mortgaged premises or with the use and enjoyment of the balance of the Mortgage Premises not occupied by improvements.
b. . ..must not affect the marketability of the Mortgaged Premises
c. . ..must have no or minimal effect on the value of the Mortgaged Premises
d. . ..must be commonly acceptable to private institutional Mortgage investors in the area ...
Banks could not warrant any of these issues due to lack or comparable sales and details regarding gas leases attached to other properties.
We can only assume that as time goes on that this could impact all of us on the shale. We spoke with local Real Estate Agents and they have started to see documents at closing in the last year where the seller has to sign an affidavit that states that the minerals are not leased and there is not drilling on the premises. This is a document coming from the lender. There is also concern among some of the local agents we spoke with that the mineral leases will impact the ability for a seller to sell their home given the reduced ability to get a mortgage on that property for a prospective buyer. This is not a good thing unless your mineral payments are greater than the value of your home or land you are selling. We already know that unless you own a large piece of property and have signed surface and mineral rights, the "mailbox money" is no where close to the value of your home. Even then, if you do not sell your mineral rights with your property, that would devalue the property for the future buyer. Also as seen in a previous post from last year, this issue has caused some lenders to refuse to finance or re-finance the property. We received info from one of our friends on the Marcellus Shale about property owners having difficulty with lenders financing properties that have surface and sub-surface gas drilling activity or existing mineral leases. Click here to read all about it.
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This may be the biggest story yet to happen in shale country.
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