Around this time of year, an extra amount of attention is lavished upon stigmatized properties and homes that may or may not be built atop bulldozed-over cemeteries. However, there’s been a fair amount of chatter as of late about an all together more scary prospect: Finding out that the home that you rightfully own and dutifully pay mortgage on was built atop land where everything underneath the surface — be it natural gas, oil, water, and other natural resources — is still technically owned by the homebuilder or developer.
Homebuilders that choose to maintain the mineral rights of a parcel of land — and the McMansions or modest suburban tract homes sitting on top of it — can pretty much do as they see fit including leasing the land to energy companies eager to exploit valuable natural resources via drilling, fracking, and on.
In a recent investigation with an attention-grabbing headline — “U.S. Builders hoard mineral rights under new homes” —Reuters explores the issue of homebuilders and developers unloading properties while laying claim to whatever is beneath the soil ... and often without the knowledge of buyers who probably won't be too keen on the potential for some fracking action in their own backyards.
In golf clubs, gated communities and other housing developments across the United States, tens of thousands of families like the Davidsons [a Naples, Fla. couple who were very much displeased to learn that they bought their $255,000 property from the soil on up] have in recent years moved into new homes where their developers or homebuilders, with little or no prior disclosure, kept all the underlying mineral rights for themselves, a Reuters review of county property records in 25 states shows. In dozens of cases, the buyers were in the dark. The phenomenon is rooted in recent advances in extracting oil and gas from shale formations deep in the earth, fueling the biggest energy boom in modern U.S. history. Horizontal drilling and the controversial practice of hydraulic fracturing, or 'fracking'" have opened vast swaths of the continental United States to exploration.
As a result, homebuilders and developers have been increasingly — and quietly — hanging on to the mineral rights underneath their projects, pushing aside homeowners' interests to set themselves up for financial gain when energy companies come calling. This is happening in regions far beyond the traditional American oil patch, which has a long history of selling subsurface rights.
The Reuters article goes on to name a long list of “smart” and shale-savvy homebuilders, both private and public, that are in the habit of severing the mineral rights from the homes that they are selling. Fort Worth-based D.R. Horton, the nation’s largest homebuilder, is singled out as a heavy practitioner of this. In Florida alone, the company owns the minerals rights to over 10,000 lots. Outside of Florida, the company has claimed the retained the mineral rights of "hundreds of thousands" of homes in numerous states ranging from California to North Carolina (mostly states were shale plays are underway or possible).
Given that sellers, in most states, are not legally obligated to disclose whether or not mineral rights are or not included in a transaction, a majority of homeowners remain clueless to the situation and just assume that whatever may or may not be present underneath the soil is rightfully theirs. Often, they simply neglect to read the fine print. “This is a huge case of buyer beware," said Lloyd Burton, a professor of law and public policy at the University of Colorado Denver tells Reuters. "People who move into suburban areas are really clueless about this, and the states don't exactly go out of their way to let people know."
Those who are clued in are largely perturbed. Janet Damon, a homeowner in a Denver community where builder Oakwood Homes has leased the underlying mineral rights to Anadarko Energy says the possibility of drilling in her neighborhood "has caused so much anxiety for families living in this radius that people started having health issues, panic attacks, because they're so concerned about their kids and families."
At Fox Run, another upscale Colorado subdivision in the oil city of Greeley (ring a bell, "South Park" fans?), residents were blindsided when local energy company Mineral Resources held a community meeting to announce that they would soon commence drilling in the neighborhood. Surprise!
As it goes, many Fox Run residents had failed to pick up on the mention of mineral rights in their deeds. None were aware that the developer had leased the land under their homes to an energy company. Officials, however, were kind enough to let residents have a say on which type of shrubs would be used to obscure the massive drilling operation to take place on their doorsteps. To be clear, Greeley itself is positively lousy with oil wells located both inside city limits and circling its borders. However, for Fox Run residents the 16-well Mineral Resources project literally hit too close to home.
Says Mark Schreibman, a chiropractor who purchased a five-bedroom home at Fox Run this past February: "When I was sitting down at my closing, I mean, the last thing I was thinking was: 'Do I own my mineral rights?' That was just a non-issue." He adds: "We were shell-shocked. No one ever thought they would frack here —for any reason."
Schreibman and other Fox Run residents, concerned not only about the impact that nearby drilling would have on the value of their homes but about the health and well-being of their families, filed an appeal with the city of Greeley in attempt to halt the operation. The appeal was rejected. Two homeowners have since sold their homes and another two are attempting to do the same. Resident Karen Janata explains her sentiments to the New York Times in an article chronicling homeowner resistance in a prosperous, energy-friendly town: “I’m just devastated by this. I would move out of Greeley tomorrow if I could.”
The CEO of Mineral Resources had this to say: "We appreciate and recognize their concerns. But it doesn't change what the state of Colorado allows us to do."
More mineral rights horror stories — and a couple of triumphs — are detailed over at Reuters. Any homeowners out there have first-hand experience with finding out, either negotiations or well after you’ve closed on a property and settled in, that the ground underneath is fair game for drilling?