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Tuesday, August 12, 2014

Will fracking decrease California property values?

I’m not a geologist and hence not qualified to comment on the pros and cons of the fracking process, so I won’t!

But data is beginning to emerge how fracking  affects property values.
And if history is any indicator it’s just a matter of time before CAR/NAR starts requiring disclosures.
And if you think it can’t happen here in California, just click here to view the vast (currently known) Monterey Shale Formation Geological Map!
Housing Wire Columnist Ben Lane exposed the risks to property values by the process known as “fracking”.
Natural gas drilling wells are becoming a more frequent sight throughout the country.
In many cases, shale filled with natural gas is mined underneath a populated neighborhood.

But the proliferation of the wells and the increase in natural gas drilling in residential areas presents a unique set of problems for homeowners and mortgage bankers alike.

In a webinar titled, “Oil and Gas Exploration for Mortgage Bankers,” attorneys from Ballard Spahr discussed the shale boom and what impact it will have on the mortgage market going forward. 

Here are the highlights:

1. Fracking causes a decrease in property values.

Because of the unknown and potentially dangerous elements involved in fracking, property values for homes with gas wells drop by as much as 15%.

There have been accusations of contaminated water, polluted air, and even earthquakes being cause by fracking.

Studies are still being done on all of these, but with the amount of unknown consequences piling up, property values are going down.

2. The shale boom is not close to being over.

“This is not a short-term boom,” said Harry Weiss, of Ballard Spahr’s Environment and Natural Resources Group.

3. Shale production is going to keep climbing as additional states begin to allow drilling, shale production will continue to climb exponentially.

4) 3-5% of wells may have some environmental incident.

“The chances of accidents occurring in these areas have increased,” Weiss said. Weiss cited the potential for polluted ground water, but said that he had not seen one case where hydraulic fracturing has been connected to polluted ground water.

“ As lenders consider the risks about lending on these properties, there are a lot of different possible outcomes other than a disaster,” he said.

5. It’s important to do due diligence to determine who owns the subsurface estate.

In some cases, the property owner may not own the oil and gas right.

The surface and subsurface rights may have been separated over the course of the property’s history. Title research is key in these instances.

6. Oil and gas drilling negatively impact the secondary market.

“The secondary market hasn’t caught up with the risk of these loans,” said Daniel McKenna, with Ballard Spahr’s Mortgage Banking Group.

Editor’s Note:  Fannie, Freddie, the FHA and VA prohibit gas leases on the land secured by their loans.

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