For years, fracktivists and real estate lawyers have been warning of the potential conflict between gas leases and the ability to secure a mortgage on one's leased property. Now the reality of that conflict is beginning to hit home locally.
A Butler Township resident, concerned over a gas lease that was taken out on his and his neighbors' condos by their homeowners' association, has been contacting area banks and lending institutions to inquire into their policies regarding the financing of leased properties. His research has yielded some very discouraging results.
Fewer and fewer banks in the area are willing to grant a mortgage to a leased property, and if the lease has the statement “lease has priority over mortgage” in it, even those few banks will not offer a mortgage for that property.
A representative from Dollar Bank said that their main concern is with the lease holder being sued. This would put the value of their mortgage in jeopardy since the lease has first priority on monies spent to settle claims filed against the gas company and lease holders. He also said that the bank would be very hesitant in issuing a mortgage if the well pad was within close proximity to the property, especially if the lease didn't absolve the lease holder from any damages. (That Butler Township has recently approved the construction of a well pad in a residential area potentially puts a number of properties at risk.) ESB Bank likewise is taking a close look at leases and liability issues. Many banks refuse to grant mortgages on leased properties simply because federal financial institutions consider gas drilling a “hazardous activity” and will not lend money for a property leased for such an activity; sometimes they refuse to finance a property that is even adjacent to one that has a gas lease.
(This was information received specific to the individual's property. It is always wise to meet and discuss your own situation with lenders.)
This same Butler Township resident has also researched a number of township leases on the Butler County Deeds and Records website; many of the residential leases in the township have the “lease priority” statement in them and the right to run water lines and access roads across the property.
This is a situation that could seriously impact Butler Township's future growth.
It should be noted that, in Aug. 2011, Butler Township formed a Marcellus Shale advisory board to help guide the township in making decisions regarding shale-gas drilling. In March 2012, an advisory board member handed the township officials an extensive report detailing the hazards and issues attendant to unconventional drilling and hydraulic fracturing. One of those issues was the potential lease/mortgage conflict described above. The advisory board member requested that the information contained in the report be shared with all township residents. This was never done.
If township officials had taken the potential lease/mortgage conflict seriously, they could have sent out a township-wide notification warning residents of this potential conflict and encouraging them to seek legal counsel on this specific issue. They did not.
Whatever may be the fallout of the lease/mortgage issue on Butler Township, one thing is certain: township officials cannot claim that they were not informed of this danger, that they were not “advised...”
M.O.B.
A Butler Township resident, concerned over a gas lease that was taken out on his and his neighbors' condos by their homeowners' association, has been contacting area banks and lending institutions to inquire into their policies regarding the financing of leased properties. His research has yielded some very discouraging results.
Fewer and fewer banks in the area are willing to grant a mortgage to a leased property, and if the lease has the statement “lease has priority over mortgage” in it, even those few banks will not offer a mortgage for that property.
A representative from Dollar Bank said that their main concern is with the lease holder being sued. This would put the value of their mortgage in jeopardy since the lease has first priority on monies spent to settle claims filed against the gas company and lease holders. He also said that the bank would be very hesitant in issuing a mortgage if the well pad was within close proximity to the property, especially if the lease didn't absolve the lease holder from any damages. (That Butler Township has recently approved the construction of a well pad in a residential area potentially puts a number of properties at risk.) ESB Bank likewise is taking a close look at leases and liability issues. Many banks refuse to grant mortgages on leased properties simply because federal financial institutions consider gas drilling a “hazardous activity” and will not lend money for a property leased for such an activity; sometimes they refuse to finance a property that is even adjacent to one that has a gas lease.
(This was information received specific to the individual's property. It is always wise to meet and discuss your own situation with lenders.)
This same Butler Township resident has also researched a number of township leases on the Butler County Deeds and Records website; many of the residential leases in the township have the “lease priority” statement in them and the right to run water lines and access roads across the property.
This is a situation that could seriously impact Butler Township's future growth.
It should be noted that, in Aug. 2011, Butler Township formed a Marcellus Shale advisory board to help guide the township in making decisions regarding shale-gas drilling. In March 2012, an advisory board member handed the township officials an extensive report detailing the hazards and issues attendant to unconventional drilling and hydraulic fracturing. One of those issues was the potential lease/mortgage conflict described above. The advisory board member requested that the information contained in the report be shared with all township residents. This was never done.
If township officials had taken the potential lease/mortgage conflict seriously, they could have sent out a township-wide notification warning residents of this potential conflict and encouraging them to seek legal counsel on this specific issue. They did not.
Whatever may be the fallout of the lease/mortgage issue on Butler Township, one thing is certain: township officials cannot claim that they were not informed of this danger, that they were not “advised...”
M.O.B.
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