Buying a newly built home? Ask questions first!

I was angry to read that some home-builders are (without always telling buyers) reserving for themselves the mineral rights of the properties on which they build. The Financial Post reports:

In golf clubs, gated communities and other housing developments across the United States, tens of thousands of families … 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, fuelling 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.

. . .

In most states, sellers aren’t legally required to disclose to home buyers whether they are severing the mineral rights to a property. Builders sometimes flag the move in sales contracts or deeds and other documents they are required to file with local authorities. But buyers don’t necessarily review their paperwork very closely, especially if, as real-estate agents say happens often, they don’t hire a lawyer to help them with the transaction.

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

. . .

Loss of mineral rights isn’t the only hit homeowners take. Property-tax assessments don’t take into account severed mineral rights. And “lenders may not be willing to extend mortgage loans on property that is subject to intensive gas extraction activities,” according to a report last year by the North Carolina Department of Justice.

Wells Fargo, the nation’s largest home lender, sometimes denies mortgages to homes encumbered by gas leases. And for the past year, Sovereign Bank has been including clauses in mortgages allowing it to declare borrowers in default if any part of the subsurface property has been “leased, assigned or otherwise transferred for use to extract minerals, oil or gas,” according to a copy of the bank’s mortgage addendum. If mineral rights are severed, “we would not move forward with financing a property,” said a bank spokeswoman.

Insurance policies usually exclude damage from “industrial operations,” and some companies are denying coverage altogether for homes where the mineral rights have been severed. Title insurance companies have been exempting anything to do with mineral rights from their policies, too.

There’s much more at the link.

Personally, I regard this as borderline fraudulent behavior on the part of the sellers.  It’s not actual fraud, in the strict legal sense of that term, but if the buyers are expecting the mineral rights to be included, and they aren’t clearly and unambiguously informed that they’re not included, then to my mind it’s a deceptive sales practice.

As always, caveat emptor . . .

Peter

4 comments

  1. That's gone on forever in Texas, at least. But there, the buyer knows up front that no mineral rights are included with the house and lot.

  2. I wouldn't be surprised if this administration confiscates all mineral rights for the benefit of ALL Americans, not just the priviledged landowners. Mexico nationalized their subsoil mineral rights during the oil heyday at the turn of the century (1900-30 somewhere in there).

  3. My brother was going to purchase a 40 acre tract of desert in southern Arizona, but found out that the mineral rights were excepted during the title search. In fact, the mineral rights owner could use the property without charge and do whatever they liked, while not even a well could be installed for the 'owner'.
    So much for that 'great buy'.

  4. You also want to check that you have the water rights for whatever piece of property you are buying, also. In some states they are separate rights.

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