Home Buyers Kept in Dark as Builders Retain Mineral Rights with Eye on Fracking Revenue

Monday, October 14, 2013
(photo: Matt York, AP)

Buying a home in many states means owning only everything above ground, while developers quietly retain the rights to natural gas and other resources deep below. This situation has left homeowners vulnerable to underground drilling, including the controversial process of hydraulic fracturing (aka fracking).

 

“This is a huge case of buyer beware,” Professor Lloyd Burton, professor of law and public policy at the University of Colorado Denver, told 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.”

 

Reuters examined county property records in 25 states and found thousands of cases where people purchased homes not knowing that a developer had retained all underlying mineral rights.

 

Homebuilders have been motivated to secretly keep mineral rights because of the booming fracking industry, hoping that someday energy companies will show up wanting to drill underneath the properties.

 

When informed that he was one of the many Americans facing this situation, homeowner Robert Davidson of Naples, Florida, told Reuters: “Wait a second, wait a second. Let me sit down a minute here. They have the mineral rights to the land I’m on?”

 

He checked all the documents pertaining to his house and found in the title—buried between information about easements and tax parcel numbers—a single line that read: “minerals, resources and groundwater (with rights of egress and ingress, springing surface waiver) in favor of DRH Energy.”

 

Indeed, the company D.R. Horton owned the mineral rights below Davidson’s home. The Spanish-style, three-bedroom house, located at the Valencia Golf and Country Club, was purchased by Davidson and his wife Julie for $255,385 in 2011. Not a word had been said to him about the builder retaining the mineral rights.

 

D.R. Horton, the nation’s largest homebuilder, apparently does this a lot, having kept the mineral rights below tens of thousands of homes in North Carolina, Alabama, Mississippi, Virginia, New Mexico, Nevada, Arizona, Oklahoma, Utah, Idaho, Texas, Colorado, Washington and California.

 

The builder has kept the mineral rights underneath more than 10,000 lots in Florida alone.

 

But D.R. Horton is not the only developer keeping homebuyers in the dark about the rights they’re not buying with their new homes. Others include the Ryland Group, Pulte Homes, Beazer Homes, Oakwood Homes, the Groce Companies, Wynne/Jackson and Shea Homes.

 

“All the smart developers are doing it,” Lance Astrella, a Denver lawyer who represents mineral-rights owners, including homebuilders, in deals with energy companies, told Reuters.

 

Homebuilders may eventually lease those underlying mineral rights to energy firms that conduct fracking operations. For instance, Oakwood Homes leased out its rights to Anadarko Energy, which subsequently assigned the rights to ConocoPhillips.

 

Janet Damon, a homeowner whose community fell within that transaction, told Reuters that the possibility of drilling taking place beneath their homes “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.”

 

Other homeowners are upset that they were denied the opportunity to benefit financially from the land they thought they had owned. “If somebody wanted the mineral rights, then obviously there was a value,” Naples homeowner Richard Goodrich told Reuters. “It wasn't negotiable. We either [gave in] or we didn't get the house.”

 

In cases where fracking operations commence in these suburban communities, some health-conscious homeowners find no alternative but to sell their homes, sometimes—not surprisingly—at a loss.

-Noel Brinkerhoff, Danny Biederman

 

To Learn More:

U.S. Builders Hoard Mineral Rights Under New Homes (by Michelle Conlin and Brian Grow, Reuters)

Fracking Companies Buy Silence of Families with Contaminated Water (by Noel Brinkerhoff, AllGov)

Pennsylvania Judge, Citing 1776 Law, Orders Fracking Compensation Disclosure (by Noel Brinkerhoff and David Wallechinsky, AllGov)

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