Updated: June 3, 2010
Pike County Courier News
Houses for shale
Published: June 3, 2010
By Linda Fields
NORTHEAST Pa — Property owners may make money from leasing to Marcellus Shale gas drillers, and they may also find their property can’t be financed for a new mortgage.
If gas is extracted and sold, the royalties can be lucrative; but what they may not know is that as long as a lease is intact, they may not be able to mortgage their property.
Broker Lori Rudalavage, who owns LA Mortgage in Clarks Summit, has been trying to sort out the policies being put into place at major banks. It hasn’t been easy, and it concerns her.
“There are a lot of properties with leases in this area,” Rudalavage notes. She adds, when it comes down to obtaining a mortgage on those properties, “more and more of [the banks] are saying, ‘no, no, no.’”
When asked to comment for the record, Wells Fargo would only say it has “no opinion at this time.”
But Rudalavage has been told that Wells Fargo would not be inclined to fund a property with a gas lease. In a memo, a top executive at the bank writes it would be “very difficult to obtain financing due to the potential hazard.” The memo continues, “Also if the Gas Leasing is new to the area there are too many unknowns.” One of the unknowns, according to the executive, is what the lease would do to “the marketability of a property.”
Rudalavage has been told by First Place Bank that it would pass on financing a gas-leased property. She says Citizen’s Savings & Loan has recently changed its policy from a “no deal” to a “maybe,” explaining that for a fee of 350 dollars, its attorney would review the lease and make a determination. This makes Rudalavage worry.
“I do believe a lot of people signed leases without knowing it could hurt future selling or financing of the property.” She hopes a uniform policy will be adopted in the financial banking industry.
“I think until a major bank takes a stand on it with a definitive policy - it’s going to be whatever they’re comfortable with. Even if you have a perfect credit score, you might not get financing,” she said.
The Realtor’s lament
How do you get a buyer to consider a purchase when they know the property might not be bankable?” asks Jennifer Canfield, a real estate broker in the Upper Delaware Valley. Canfield says she has been told by a customer that they were turned down for a home equity loan by GMAC because their property was under a gas lease. Canfield cites a long list of banks that won’t fund leased properties, based upon environmental risk. She adds, “Some local banks might underwrite their own loans. But many people don’t want someone else to decide for them where to get the loan.” She likens the situation to a homeowner in a flood zone for whom flood insurance protection has been withdrawn. GMAC has not responded to a request for a comment.
In Pennsylvania, the mineral estate can be separate from the real estate, thus allowing a private contract (i.e., a lease) to be drawn up between a landowner and a gas exploration firm. Environmental and infrastructure concerns in connection with Marcellus Shale gas drilling have been well publicized. But putting environmental concerns aside, if such a lease leads to the lowering of real property values, the separation may not be so matter-of-fact.
According to James Leiser, a clerk at the Pike County Geographic Information Systems office, there are about 1,000 “Marcellus Shale” acres covered under five leases recorded in Pike County. But Leiser adds, his office hasn’t seen any leases come through since September of 2008.
Water needs on hold
County Planning Director Sally Corrigan says all water withdrawal permits, needed for the water-reliant fracking process, have been put on hold by the Delaware River Basin Commission, which needs to examine fracking.
This makes little sense to Pennsylvania Department of Environmental Protection spokesperson Tom Rathbun, who said the hydraulic fracturing method has been used since the 1940’s. He says that it isn’t the amount of water used that potentially can cause trouble, but what happens at the drilling site.
“There needs to be proper erosion and sediment controls, the storage of waste has to be handled properly on the surface,” Rathbun explains. He adds, the DEP also has to monitor well construction and the transportation of water. “All the talk about water withdrawals just diverts attention away from the real issues,” Rathbun says. “The amount of water used in this state for recreation dwarfs what the gas industry uses.”
Property devaluation hits tax revenues
Pike County Commissioner Karl Wagner Jr. says, “If a property owner cannot get a mortgage or sell their house because of gas lease, they could petition the Board of Appeals to have the fair market value of the property lowered.” While that could result in lower taxes and less revenue for the county, Wagner says it is premature to worry. He notes that there is pending state legislation that would give counties the right to assess oil and gas interests for property tax purposes, and share in any new revenue from natural gas development through state levies such as a severance tax.
Canfield laments, “Even if sellers want to hand over the revenue derived from a future well, the clientele I’ve always relied upon don’t care to come here for that. In my own case, the phone stopped ringing when it became widely known how many thousands of acres were signed up. It would be helpful if the same people who signed leases could see how much we have lost in revenue from property and home buyers who made use of local services, frequented retail shops and restaurants and hired local contractors for building and remodeling. We can someday, perhaps, recover from the economic downturn …but leases run with the land.”