Homeowner risks explored during study group meeting

Feb. 09, 2013 @ 05:00 AM

The environmental risks of hydraulic fracturing have been discussed at length — especially since the process received tentative clearance last summer — as have the economic benefits. But legal ramifications for individual homeowners is one topic that's only slowly coming to light — and one that was the focus of a meeting Friday morning.

At the meeting, held by the Compulsory Pooling Study Group of the N.C. Mining and Energy Commission, experts in various fields of law, banking and real estate told the several dozen people who had gathered at the Pittsboro branch of Central Carolina Community College about many risks associated with hydraulic fracturing — more commonly known as fracking — especially as it relates to homeowners' insurance, mortgages and other land issues.

The State Employees Credit Union and the N.C. Housing Finance Agency have already said they will refuse to offer mortgages to landowners who don't own their mineral rights, citing uncertainty surrounding what fracking will do to property values.

John Humphrey, a Washington, D.C., lawyer specializing in estate planning who grew up in Sanford, gave a presentation in which he noted that those two lenders are now the only two in North Carolina with such a policy, but more may follow.

During another presentation — this one by Don Kovasckitz, Lee County's director of strategic services  — Kovasckitz said that split estates are rare, and that the vast majority of land owners do own their mineral rights below the surface.

So while few people might be affected directly by those companies' decision to remove themselves, Humphrey said after the meeting that such a situation could lead to higher mortgage prices for all North Carolinians, citing simple economics: Fewer competitors offering mortgages means that those who do offer them can get away with higher rates.

However, in his presentation, he said that the lenders might eventually reverse course if they believe the public doesn't mind fracking and, especially, doesn't mind paying the same prices for tracts of land with or without drill pads and wells.

"This has a great deal to do with public perception of value," he said.

Another cause for concern for mortgage lenders, as well as insurance companies, Humphrey said, is the potential for spills, contaminations or liability lawsuits. He noted that people with mortgages might be required to get their lender's permission before leasing anything to an energy company, and that they might have trouble obtaining credit or refinancing. On the other hand, fracking could help lenders guarantee payment because they might be able to ensure that any money — royalties, signing bonuses or other income — from fracking goes directly to paying the mortgage before it goes to the landowner.

He also said he doesn't know of any insurance companies whose coverage includes damages caused by fracking, although that's not a new development.

"It's just that this has never come up before (in North Carolina)," he said.

Kovasckitz, in his presentation, unveiled a series of maps that overlay the areas most likely to contain shale gas with a map of which parcels have split estates as well as which mineral rights have been leased to energy companies. It also superimposed the locations of rivers, streams and wells. Another three-dimensional map used during the presentation offered a glimpse below the surface, showing how deep and wide fracking drills can go.

This presentation, and the others, should be available soon at http://portal.ncdenr.org/web/mining-and-energy-commission/february-8-2013.

Ray Covington, a local landowner and leader of the study group, said, "I doubt very seriously there's another county in the state that has that level of information" and thanked Kovasckitz for his work.

Earlier in the meeting, Covington repeated his usual pleas that people submit questions to the board so they could be gathered for the record and that people come introduce themselves to him, even if they're opponents of fracking. He also urged people to join the Commission's listserv.

People can email denr.shale.gas-subscribe@lists.ncmail.net, with a subject line of "subscribe" in order to get on the mailing list.