Gas Leases Impact Home Lending

By Emma Jacobs

Syracuse, NY – Gas companies still have to wait to drill in the Marcellus Shale until the state finishes writing drilling rules. But local banks say they're already restricted from issuing mortgage or home equity loans on some properties leased for drilling. That's because protections for landowners may not always be in the contracts.

If you own a piece of land free and clear, you own rights to use the surface. You also own what are called the mineral rights - the coal, the gas, the gravel that might be in the ground. "In theory it goes up to the heavens and down to the center of the earth," explains Chris Denton, an attorney.

His practice has come to specialize in work for landowners since the start of the area's natural gas boom.

He deals with the gas leases - contracts that are a little like a time share. Companies say we'd like to share the part of your land you're not using. We don't want your house, but we want to access what's underneath it. In the Marcellus Shale, that's lots of natural gas.

But one of the problems is unlike a time share you and the gas company are going to share this land at the same time. And unless you set some limits in your contract - like the company has to drill under your property from a neighbor's land - you'll also be giving them permission to access the gas from the surface.

"If you just grant without discussing surface rights," says Denton, "by law in both Pennsylvania and New York, the surface is subject to the ability of the people to take the gas out." This has come to a head in the upstate New York mortgage market.

"There's a constant flow of mortgage money at competitive rates, but we do have to follow their guidelines," says Greg May, vice president for mortgage lending with the Tompkins Trust Company.

Contract details banks hadn't considered, like the buffer zone around the house are now something lenders have to contend with pretty regularly. And May says in the last six months, gas companies have become less cooperative about making changes. Lawyers say more deals fall apart before they even reach the bank because sellers want to hold onto mineral rights.

Western Pennsylvania has a long history of oil and gas drilling. And so mineral rights and surface rights may have been sold separately generations ago, meaning they're now owned by different people.

Tim Kelsey with Penn State Extension says that's led to unpleasant surprises for some of today's homeowners.

"People saying they retired here, they own 10 acres and suddenly they find out in a week that a rig is going to come in and the grove of trees that they really like back away from the house, they really liked it is going to be bulldozed and they have no right to be able to say no to it. A lot of anger, a lot of pain about that process."

Kelsey says these circumstances make gas drilling's haves and have nots very visible in Western Pennsylvania. Now, he says, that like upstate New York, sellers in the northeastern part of the state are also trying to sell their surface without the mineral rights.

"Long run, generations from now we'll have the same challenges there that we have in parts where historically there's been mineral extraction here."

In New York, State Assemblywoman Barbara Lifton from Ithaca, has just submitted rules that would make leased properties easier to mortgage. However, there are just a few days left to pass that legislation this session.

May says he expects to have more conversations with the county and state in the coming months.