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Amy Mall’s Blog

New report on the growing evidence of fracking's negative impacts on property values and local economies

Amy Mall

Posted March 20, 2014 in Health and the Environment

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There's an important new report out from the non-profit Resource Media, entitled: "Drilling vs the American Dream: Fracking impacts on property rights and home values."

The authors have compiled mounting data from around the country about how fracking leads to lower property values and other negative economic impacts in communities. Even the CEO of Exxon-Mobil is involved in a lawsuit claiming that a water tower to be used for fracking near his ranch would cause immeasurable monetary harm to his property.

Here is more of the evidence:

  • A study published in the Journal of Real Estate Literature found that a majority of people surveyed would decline to buy a home near a fracking site and that people who are willing to buy a home near a fracking site reduced their offers by up to 25 percent.
  • An economic analysis of communities in six states found that, despite short-term windfalls, over the long-term “oil and gas specialization is observed to have negative effects on change in per capita income, crime rate and education rate.”
  • Realtors have reported that some potential home buyers won't look at “anything remotely close to any existing or proposed well sites" and that homes near wellsites “often have to sell at significantly lower prices than when originally purchased” -- and that some buyers won't look at these homes at all, even if they are deeply discounted. Some homes can't be sold at any price if they are already reported to have contaminated water. In one study, just the possibility of contaminated water  decreased property values by an average of 24 percent.
  • At least 39 states allow forced pooling, which gives oil and gas companies the right to extract someone's oil or gas even if they don't want to sell it. This is also called “mandatory pooling” or “compulsory integration,” and can force a mineral owner to not only sell their minerals but to be liable for further costs.
  • Banks in various states won't provide mortgages to properties where mineral rights have been sold. In some cases a mortgage has been denied when a neighbor has leased, even if the owner of the home for sale has not leased the mineral rights. According to one lender, “gas wells and other structures in nearby lots…can significantly degrade a property’s value” and do not meet underwriting guidelines.
  • Federal institutions (FHA, Fannie Mae, Freddie Mac) all have prohibitions against lending on properties where drilling is taking place or where hazardous materials are stored. A drilling lease on a property financed through one of these agencies would result in a ”technical default.” FHA’s guidelines also don’t allow it to finance mortgages where homes are within 300 feet of an active or planned drilling site.
  • Homeowner's insurance policies generally don't cover industrial damages. Nationwide Insurance specifically states that it won't provide coverage for damages related to fracking under General Liability, Truck Cargo, and auto insurance. But often an oil and gas company's insurance wont cover damages to a private home, so that the only alternative left is for a homeowner to file a lawsuit.

There is a lot more information available on Resource Media's website. This is very important information for any mineral owner or community contemplating allowing fracking.

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Comments

Michael BerndtsonMar 21 2014 03:57 PM

Amy,

The last sentence in our fourth bullet point is kind of freaky - and should give property/mineral rights owners pause:

"... This is also called “mandatory pooling” or “compulsory integration,” and can force a mineral owner to not only sell their minerals but to be liable for further costs."

Let's first assume everything goes swimmingly. Rights holders in North Dakota or Pennsylvania should be able to winter in Florida or Costa Rica, with those oil and gas royalty checks.

Now let's assume things don't go well or everything's all fracked up. What costs are mineral rights owners liable for? Cost for surface restoration? Or if necessary, groundwater remediation? Cost for well plugging and abandonment? Or heaven forbid, third party liability for environment and health damages of an entire region?

Since much of this oil and gas production is quasi regulated (if that w/eye roll), there isn't a responsible party structure of a CERCLA (superfund). Mineral rights owners wouldn't necessarily fall under de minimis status (or whatever lawyer types call short money folks in the pool or responsible parties). In short, landowners as rights holders could lose the farm - so to speak.

Amy MallMar 21 2014 04:20 PM

Hi Michael: You make excellent points. The laws will differ from state to state so any landowners should check the rules of their own state to understand their rights.

FrackyMar 25 2014 07:10 AM

The use of solar energy has not been opened up because the oil industry does not own the sun.

~ Ralph Nader

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Switchboard is the staff blog of the Natural Resources Defense Council, the nation’s most effective environmental group. For more about our work, including in-depth policy documents, action alerts and ways you can contribute, visit NRDC.org.

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