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Drilling vs. the American Dream: Fracking impacts on property rights and home values

March 14, 2014

There are currently more than 1.1 million active oil and gas wells in the United States, and more than 15 million Americans now live within a mile of the hundreds of thousands that have been drilled since 2000, according to an analysis by the Wall Street Journal. Made possible by the advent of fracking, drilling is taking place in shale formations from California to New York and from Wyoming to Texas.

And there’s no indication that this “unprecedented industrialization” shows any signs of slowing. Almost 47,000 new oil and natural gas wells were drilled in 2012, and industry analysts project that pace will only continue.

“You could end up where someone puts a drilling platform on that property. We’d have to tell their neighbors, ‘We’re sorry, your property value just went down.'”
–Jim Blaine, President & CEO of State Employees’ Credit Union in North Carolina, which decided this year to no longer approve mortgages on properties where the mineral rights are severed from the property.

Drilling rigs now regularly inch up and even into communities that never anticipated having to address problems like round-the-clock noise, storage tanks, drums of toxic chemicals, noxious fumes, near-constant truck traffic and pipelines near homes, schools, playgrounds and parks. For many, the impacts of this kind of large-scale industrial activity are incompatible with quality of life.

Congressman Jared Polis saw this firsthand last fall when a drilling rig went up on property neighboring his small farm in Weld County, Colorado. Polis, who said he had no notice of the fracking operations, filed a complaint with state regulators and then a lawsuit over concerns “about the impact that fracking has on the health of communities as well as the economic impact as it relates to property value.”

Also look no further than Exxon CEO and board chairman Rex Tillerson, who is suing to stop construction of a water tower that would supply nearby drilling operations because of the nuisance of, among other things, heavy truck traffic, noise and traffic hazards from the fracking operations the tower would support. That’s right, the head of the single largest drilling company in the world, acknowledges the “constant and unbearable nuisance” that would come from having “lights on at all hours of the night …traffic at unreasonable hours … noise from mechanical and electrical equipment.” Tellingly, Tillerson’s lawsuit – filed in 2012 with other plaintiffs, including former House Majority Leader Dick Armey – claims the project would do “irreparable harm” to his property values.


Drilling near Mansfield, Texas

At a more macro level, research is staring to show that energy booms such as the current drilling frenzy may not be the economic windfall that boosters make them out to be. After the initial surge in income and jobs that comes with drilling, problems inevitably follow: higher crime rate, decreased educational attainment and over the long run, significant declines in income. The more heavily a community ties itself to the drilling economy, the greater the decline. “The magnitude of this relationship is substantial,” the study authors are quoted saying in the Washington Post, “decreasing per capita income by as much as $7,000 for a county with high participation in the boom.”

“The Plaintiffs have no adequate remedy at law for the injuries just described. The injuries and losses are continuing. The property and rights owned by Plaintiffs are unique and irreplaceable so that it will be impossible to measure accurately in monetary terms the damages caused…”
–From a lawsuit filed by Exxon CEO Rex Tillerson to stop construction of a water tower that the complaint says will be used to support fracking near his horse ranch outside Dallas.

For those who own the rights to the oil and gas on their properties, the impacts of drilling can be offset by royalty payments that come from selling them to oil and gas developers. But in most parts of the country, the legal doctrine of split estates allows one party to own the rights to minerals and other resources below the surface while someone else hold the rights to property above ground. With the oil and gas industry showing little self-restraint and drilling encroaching into cities, towns and suburbs, split estates have left millions to deal with problems such as increased truck traffic, chemicals, lights, noise, heavy equipment, noxious air emissions and water – all without any compensation.

There are weak regulatory protections and few legal precedents to protect residents from this kind of industrial activity in their back yards. Regulations on how far drilling must be set back from homes and schools, for example, provide almost no cushion – often only several hundred feet – to mitigate drilling’s impacts on nearby homes and businesses.

Feeling unprotected by weak state and federal regulations, however, more and more communities are starting to fight back by passing local laws restricting or banning fracking within their borders. Pittsburgh became one of the first to take matters into its own hands with an ordinance in 2010. Since then, many others have followed suit: Dallas, Los Angeles, multiple cities and towns in New York, New Jersey and Pennsylvania, counties in New Mexico. Last fall in Colorado, voters in four cities passed ballot measures banning or severely restricting fracking, three of them overwhelmingly. And this year, backers are gathering signatures for a 2014 statewide ballot measure that would give Colorado cities and towns local control over drilling-related policy decisions within their borders.


Oil-well flaring near a playground in Denton, Texas.
Photo courtesy: Cathy McMullen

This pushback against drilling and its impacts goes beyond simple NIMBYism. The financial risks posed by drilling are real and substantial enough, as detailed below, that banks and insurers are also now adopting guidelines that forbid mortgage loans or insurance coverage on properties affected by drilling. It’s a battle between oil and gas and the nest egg of countless Americans.

The following examples begin to piece together the ways in which the threats posed by drilling and the deep pockets of the oil and gas industry quite literally hit home. Taken together, they are a call for decision-makers to start quantifying data and asking tough questions about drilling vs. the American Dream.

Property Values

“I for one don’t want a [drilling] pad right behind my home. Not because I’m scared of dying of cancer, but because my property values will decrease. Everybody needs their property values protected.”
–Longmont City Councilman Brian Bagley, whose city is being sued by both industry and the state of Colorado over its voter-approved ban of drilling inside city limits.
“We need basic numbers and figures, like ‘How much am I going to lose in property value if they start drilling in my subdivision?’ These aren’t unreasonable questions to ask. I think people deserve some real answers.”
–Boulder County (Colo.) Commissioner Elise Jones


A well and battery of natural gas storage tanks near homes in Longmont, Colo.
Photo courtesy: Our Health, Our Future, Our Longmont

Property Rights

“This quintessential American dream is soon rudely interrupted when heavy industrial activity appears at their backyard fence, sometimes with little to no notice. [Coloradans] soon discover that oil and gas activity does not make a good neighbor.”
–Denver Realtor Adam Cox describing how drilling has harmed property values and the real estate market in Colorado.

Mortgages and Fracking

“My beautiful house was all of a sudden on an industrial site. We wanted to get as far away from fracking as we could.”
–Susan Fowler, who sold her suburban Cleveland home next to neighbors who
leased their land for fracking for about half its appraised value.

Recognizing the numerous ways that drilling and fracking could damage value, the mortgage industry is starting to refuse to take on the financial liabilities and is tightening policies that prohibit lending on properties with wells on them or that are subject to leasing.

  • Following the debacle in North Carolina over severed mineral rights (see above) the State Employees’ Credit Union in North Carolina officially has decided it will no longer approve mortgage financing for properties where the drilling rights have been sold off to someone else. The credit union, which manages almost $12 billion in residential mortgages, said it considers loans on such land to be riskier than those where the mineral rights remain with the land.
  • According to American Banker, at least three mortgage lending institutions — Tompkins Financial in Ithaca, N.Y., Spain’s Santander Bank and State Employees’ Credit Union in Raleigh, N.C. — are now refusing to make mortgages on land where oil or gas rights have been sold to an energy company. The publication quoted the president and CEO of the North Carolina credit union saying that if a landowner allows a drilling rig to go up on his or her their land, “We’d have to tell their neighbors, “We’re sorry, your property value just went down.’ ” (Also quoted in the Motley Fool.)
  • Language in Freddie Mac’s standard mortgage contracts prohibit a “borrower from taking any action that could cause the deterioration, damage or decrease in value of the subject property,” and if the prohibition is broken by say, a landowner signing a drilling lease or entering into a mineral-rights agreement, Freddie Mac has the legal authority to exercise a call on a mortgage’s full amount if a borrower, according to an agency spokesman.
  • According to a white paper prepared for the New York State Bar Association, Wells Fargo, one of the largest home mortgage lender in the United States is approaching home loans for properties that have gas drilling leases attached to them with a high degree of caution.
  • In addition to Wells Fargo, Provident Funding, GMAC, FNCB, Fidelity and First Liberty, First Place Bank, Solvay Bank, Tompkins Trust Co., CFCU Community Credit Union are either putting hard-to-meet conditions on mortgages or denying loans altogether on properties with oil and gas leases. (Excellent summary of oil and gas issues related to mortgage lending from a brokerage vice president is available online.)
  • The backgrounder prepared by the NYSBA about gas leasing impacts on homeowners also includes a section on residential mortgages and says the combination of home-ownership and drilling, “creates a perfect storm begging for immediate attention.” Risks include:
    — Homeowners being confronted with uninsurable property damage for activities they cannot control.
    — Banks refusing to provide mortgage loans on homes with gas leases because they don’t meet secondary mortgage market guidelines.
    — Impediments to new construction starts, long a bellwether of economic recovery, since construction loans depend on risk-free property and a purchaser.
    — The possibility of a property owner defaulting on a mortgage by signing a gas lease.
    — Prohibitively expensive appraisals and title searches that are complicated by assessing the value of risks and the arcane paper trail of mineral rights and attached liabilities.
  • A Pennsylvania couple was recently denied a new mortgage on their farm by Quicken Loans because of a drilling site across the street. According to the lender, “gas wells and other structures in nearby lots…can significantly degrade a property’s value” and do not meet underwriting guidelines. Two other lenders also denied the family mortgages.
  • Federal lending and mortgage 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. Also see

Insurance Coverage

Homeowners who think damage to property incurred by drilling accidents is covered by insurance need to think again. Such damages are typically not covered.

Other online resources:

fracking frederick colorado

Drilling next to the Eagle Valley subdivision in Frederick, Colo.
Photo Credit: via Grist


fracking frederick colorado

Drilling next to the Eagle Valley subdivision in Frederick, Colo.
Photo Credit: via Grist


fracking frederick colorado

Drilling next to the Eagle Valley subdivision in Frederick, Colo.
Photo Credit: via Grist


fracking frederick colorado

Drilling next to the Eagle Valley subdivision in Frederick, Colo.
Photo Credit: via Grist


Originally published: November 4, 2013; updated March 14, 2014

12 responses to “Drilling vs. the American Dream: Fracking impacts on property rights and home values”

  1. Lucky Lambdin says:

    It is unfathomable that in this day & age the interests of big business – especially the oil industry – still take precedence over the rights of the common citizen & Mother Nature.
    When will we see that big oil companies are about nothing but greed & money…they certainly couldn’t care any less about Mother Nature! Find a site, rape the earth for all it’s worth, move on & leave a huge mess behind. Nice! We only have one planet, let’s please start respecting her & taking care of her! Lucky Lambdin.

  2. jason says:

    The split ownership isn’t new. these people new the deal when they bought the land. If they bought it hoping nothing would happen in the future, which is called gambling, then it is all on them. Vegas was built by people who took a chance……and lost. Maybe vegas should refund the money.

    • etracker says:

      Actually Jason, very few, if any, people know that the land under their homes and property doesn’t belong to them. That may be the case in rural areas, but in subdivisions, there are almost no provisions for letting homeowners know about the possible conflicts that await them. Developers are selling off the minerals underneath their subdivisions and there is no requirement for that disclosure to be in closing documentation. Or if it is, it’s a single sentence or less buried in hundreds of pages.

  3. Swaggy P says:

    Next to a playground that is just ridiculous!!!!!! :/ Thanks Obama!

  4. Mel says:

    I’ve lived near fracking for 20 years, and none of the above has taken place. It’s irresponsible journalism to exaggerate as much as the above article. And the “research” is doubtful also. Houses are snapped up in my town the minute they come on the market; the drilling is completely unobtrusive.

  5. Thanks for writing Mel. And congratulations on living near one of the fracking sites that haven’t caused any problems. Certainly, there are probably lots of people who have had the same experience as you. But there’s also a growing body of people who haven’t had the same experience. They have had their water contaminated. They’ve had their land and lives turned upside down. They’ve watched as the air they breathe has become toxic, and they’ve suffered through serious health problems related to exposure to fracking and petroleum chemicals. And they’ve seen the homes they’ve invested life savings in become all but worthless and unsellable because of the industrial activity that nobody wants to live near. These are very real problems and they’ve been documented. And with the recent boom in drilling that fracking has spawned, the drilling is happending closer and closer to where people live. Not a few people in rural areas, but millions of them in cities and suburbs.
    The research you question has been peer-reviewed, and we’ll take the word of scientists and researchers who have had their work scrutinized by others over the word of industry any day.
    And finally, the fact that houses are being snapped up every day says little. As we noted above, there are few if any requirements about disclosure for fracking in real estate documents. There is a proposal for a new law in Colorado, for example, for that to become a requirement, but the fact is, a lot of people have no idea what they’re walking into. And once they sign the papers then move in and realize that drilling rigs are operating around the clock, that there are waste pits with toxic chemicals, wells being flared, thousands of trips of heavy truck traffic and … it’s often too late.
    This article is NOT a call for an end to fracking. Read it again. The whole point is for there to be a lot more research and for policy makers to start paying attention to an issue that has the potential to affect millions of people and billions or more in real estate value.
    Thanks for writing.

  6. david says:

    I’ve started thinking about buying a home in the North Texas area, and i’m glad that someone told me to consider drilling sites close to real estate (which is what brought me to this article from a google search). However, I have no idea where to even begin to find information on towns/neighborhoods and their current and future proximity to drill sites. Any suggestions or tips?

    • Hi David,
      Unfortunately, the news is not all that helpful. One of the real problems is that there is scant information about split estates and potential drilling for any prospective homebuyers. There are few requirements for disclosure, and even title search companies are at a loss for how to go about addressing and researching this very complex subject.
      It’s one of the reasons a growing number of officials are calling for more research and more requirements on reporting. People like you need to know what they’re getting into when they sink a good chunk of their life savings into a new home. Prospective buyers have a right to know if there’s a chance that it could be lost because fracking might suck all the value out of their nest egg.
      Best of luck in your search. Stay tuned, as we’ll add new content to this page as it becomes available.

  7. Jim @Heritage Mountain Estates says:

    Question: We live in a 35 year old subdivision in the mountains of Southwestern North Carolina. Should we be concerned if our mineral rights are not available to others? If so, since we do have a strong property owners association, can a provision be added to our By-laws to prevent a land owner from selling their mineral rights?

    • Jim @Heritage Mountain Estates says:

      Sorry, should have said add to our deed restrictions, not By-laws. We are also checking with our attorney.

      • Eric Frankowski says:

        Intuitively, it seems as though deed restrictions would be a stronger way to go since they are part of a contract, but glad you’re checking with an attorney, who will be able to tell you more definitively what approach is more legally sound.

  8. Eric Frankowski says:

    Hi Jim,
    If I understand your question correctly, you and your neighbors should always be concerned if you don’t own the mineral estate underneath your land. Who knows what plans the person or company who does hold those rights might have. It’s certainly worth asking questions to find out more.
    As for the second part of your question, that is something you really should consult your HOA attorney or an experienced real estate or oil and gas attorney about. Part of the answer will depend on where you live since states all have their own regulatory frameworks governing oil and gas development. Really, though, I have no idea about the legal interplay between statutes and HOA bylaws and would not be qualified to give any legal advice.
    Thanks for posting. Good luck. Let us know what you find out.

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