Homeowners who sign gas leases to permit hydraulic fracturing for shale gas may be defaulting on their mortgages, risking loss of title insurance and homeowners' insurance coverage, and preventing future buyers from obtaining title insurance or mortgage loans on affected property. Residential mortgages prohibit borrowers from committing waste, damage or destruction or causing substantial change to the mortgaged property or allowing a third party to do so. This includes operations for gas drilling.
Most American homeowners hold a mortgage loan and ninety percent of all residential mortgage loans are sold into the secondary mortgage market. Mortgage lending favors low-risk activity on its mortgaged properties. Fannie Mae, Freddie Mac and the Federal Home Loan Banks establish lending guidelines for appraisers and underwriters that dictate whether a home is a worthy investment. Because of this, many lenders including Bank of America, Wells Fargo, Provident Funding, GMAC, and others are imposing large buffer zones around the home as a condition to the loan or not granting a mortgage at all for those property owners who have entered into gas leases. As more lenders continue to connect the “no hazardous activity” clause in the mortgage with the increase in uninsurable events from residential fracking, this trend will only continue to increase. If homeowners with gas leases cannot mortgage their property, they likely cannot sell their property either as any potential purchaser will likely need mortgage financing to fund the purchase. The inability to sell one’s home may represent the most pervasive adverse impact of residential fracking.
If you are a party to an existing gas lease or have been approached with a proposal to lease your property for hydraulic fracturing, and would like to discuss your contractual rights and/or the implication of execution of a proposed gas lease, please contact Scott D. Simpkins or David M. Cuppage at 216-621-8484.