HOW GAS DRILLING AND HYDROFRACKING AFFECT PROPERTY VALUES

Homeowner’s insurance policies do not cover liabilities from industrial operations, no matter how willingly insurers accept your premium payments.  Similarly, banks will continue to collect mortgage payments despite the fact that every leased property-owner who did not get approval from their mortgage-holder prior to signing is in technical default and has in fact committed a fraud: one simply can’t assign one’s subsoil interests to both the bank and one or more gas companies and one certainly can’t undertake uninsured activities on a property on which someone else holds the mortgage. If a residential property is converted to commercial use, the mortgage holder can call the loan. Similarly, the oil and gas company may pledge the mineral interest in the property as collateral on their borrowings - in effect hypothecating* an asset that is already encumbered by a mortgage.

Nine-tenths of local bank mortgages are re-sold into secondary markets (eg. FannyMae, FHA, VA, SONYMA), which makes more investment capital available for home-mortgage lending.  Those agencies have recently decided to enforce long-standing regulations prohibiting activities commonly associated with gas drilling. That means that leased properties (and those unleased properties subject to inclusion into drilling units through Compulsory Integration) will be more difficult to sell, reducing their market value.

Leased property-owners have also encumbered the use-value of their properties.  Any improvements (buildings, additions, plantings) made to leased property can be removed by the driller, even after it is sub-divided, sold outright, or passed on to heirs.  Any infrastructure needed by gas extraction (access roads, metering stations, gas storage, pipelines, compression stations, multiple well sites) can be located anywhere on the leased property surface unless specifically limited by the lease. There are no setbacks in New York state for shale gas infrastructure, such as compressors, gathering lines or tank batteries -  from any buildings, including  residences.

The best review of insurance/mortgage problems from a legal standpoint can be read in the New York State Bar Association Journal (Nov-Dec 2011)

http://www.nysba.org/AM/Template.cfm?Section=Home&ContentID=57132&Template=/CM/ContentDisplay.cfm

*Definition:
Hypothecate

To pledge property as security or collateral for a debt. Generally, there is no physical transfer of the pledged property to the lender, nor is the lender given title to the property, though he or she has the right to sell the pledged property in the case of default.