Part Two: What’s the Big Fracking Deal?

Image Credit to Ostroff Law

In the first part of this series, I talked about some of the dangerous effects fracking has on the environment. However, the problem with fracking isn’t entirely an environmental one. Pollution, health hazards and earthquakes are the chief concern, but shale oil drilling comes with a few economic side effects that make life harder for average Americans. People are finding that their property values are dropping, banks are refusing to write mortgages, and insurance providers are starting to deny coverage. Let’s take a closer look at how these factors are affecting our lives.

Falling Home Prices

The simple fact is that no one wants to buy a home if the next door neighbor is a noisy oil rig. Add in the concerns about health and pollution, and you can see how fracking has the potential to render a home nearly worthless. Of course, there is still money to be made from the large tracts that have available mineral rights, but for the average person, a home on a small plot or even a small hobby farm in a heavily fracked area could prove to be a terrible investment.

The problem is so widespread that according to Boulder Weekly, some 15.3 million Americans have lost a large portion of their total wealth because of gas and oil drilling in their region. Attorneys from the Ballard Spahr law firm recently conducted a study showing that fracking can cause property values across an entire community to drop by 15%. In a moderately populated city—around 100,000 residents—this translates to several billion dollars’ worth of lost wealth.

Lenders are Nervous

The falling home prices lead directly to the next crisis: Banks are edgy when it comes to writing mortgages in areas where fracking is big. Marcellus Drilling News reports that at least three banks are refusing to write mortgages for properties in which the drilling rights have been sold to an energy company.

Pro-drilling people are quick to point fingers at the banks, but can you really blame them? Would you invest in something if you knew there was a good chance that your investment would drop in value or become a liability in a few short years?

The mortgage problems go far deeper than that, though.

Many homeowners around the United States are finding that banks are refusing to write mortgages even if the property in question retains its mineral rights. Drilling companies can—and do—force homeowners into drilling leases against their will. If your property is part of a larger unit and neighboring homeowners have agreed to it, drilling companies can move forward without your express permission. Banks know this, and are starting to look at not only your mineral rights, but your proximity to fracking activity in general.

Even if you do manage to secure a mortgage, the title company might have something to say about it. Many title insurance agencies are now writing in exemptions for potential losses caused by drilling. That puts homebuyers at a much greater risk than ever before.

Image Credit to Joshua Doubek

Insurance Woes

Even for those who do manage to buy and sell homes in areas where fracking is common, the trouble doesn’t stop at the bank. Insurance companies are making it harder to insure these properties because they don’t want to assume the risk for spills, contaminated water, earthquakes and other hazards. At the very least, you can expect to pay more than average for homeowner’s insurance.

Earthquake insurance is another factor. In the previous post, I detailed how this industry is causing hundreds of small earthquakes and even some larger damaging quakes. Earthquake insurance is now necessary in places where it was previously a laughable idea.

And here’s the biggest problem:

Let’s assume that you’re a homebuyer. You found a bank willing to lend, a title insurance agency that didn’t put up much of a fuss, and you secured homeowner’s insurance along with earthquake insurance, albeit at a higher rate.

That doesn’t mean you’re protected.

Insurance companies will not pay for damages that are caused by fracking. This includes your home, your car and anything else that you’ve insured. It’s not really news—insurance companies have maintained this policy for quite a long time. However, a leaked memo from Nationwide brought this problem to the public’s attention back in 2012. According to the memo, the insurance giant felt that the risks posed by fracking were “too great to ignore.”

By the way, the drilling companies won’t pay for damages, either. Not unless you’re prepared to spend everything you’ve got in a lawsuit that may or may not work out in your favor.

It’s a terrifyingly tragic mess. Homeowners can’t sell their homes, buyers can’t secure funding, and everyone in between suffers with rising insurance costs or a lack of coverage. To top it off, the environmental concerns are appalling. It’s like watching comic book villains steal money as they poison the water supply and rend the earth—except it’s real.

Sources:

The Fracking/Real Estate Conundrum, Boulder Weekly

Fracking: A Growing Threat to Home Values?, National Association of Realtors

Ithaca, NY Bank Won’t Grant Mortgage on Land with Drilling Lease, Marcellus Drilling News

US Insurer Won’t Cover Gas Drill Fracking Exposure, AP News