How Participating With Fracking or Drilling, Voluntarily or Forced, Could Put You in Mortgage Default

(EnviroNews Idaho) — Boise — Nearly 98,000 acres have been leased by the state of Idaho for oil and gas drilling within the past two years.

Many of those acres are sprawled across the same five counties Umpqua Bank Mortgage Loan Officer Kevin Spencer does business in. With the state’s oil and gas industry still in its infancy, Spencer said he isn’t worried about negative impacts to real estate lending. He’s hoping energy development will give a boost to the area’s real estate market.

Spencer is optimistic the industry will lead to more money flowing through the area, an increase in jobs, and in turn, more homes sold.

“That would be a good thing for me,” Spencer said.

Payette County Senior Deputy Assessor Doris Manker said that although many leases have been filed, and a few wells drilled in the county, property values have, so far, not been impacted but officials are watching the situation unfold.

“Right now, we’re taking baby steps with what we are doing,” Manker said, adding that county officials just don’t have enough information to see how the still-developing gas industry may impact property values.

Areas across the US where drilling has had an historic and heavy presence has led banks and insurance companies to more carefully assess the risks of drilling and fracking. In addition to the issue of decreasing property values, mortgage companies have even denied loans for parcels with gas leases on them.

This conversation is not occurring in Idaho except within activist circles and a small, but growing, group of concerned citizenry.

Some people, like Idaho Residents Against Gas Extraction (IRAGE) Co-Founder Alma Hasse, are sounding the alarm about possible mortgage conflicts and declining property values before Idaho’s gas and oil industry even has a chance to inflict damage on the market, and people’s pocketbooks and personal investments.

Prior to moving to Idaho nine years ago, Hasse worked in the mortgage industry for 14 years in California, doing everything from “filling out applications,” to managing the Palmdale branch of the American Bankers Mortgage Corporation.

In early 2012, Hasse asked Attorney Robert Wallace with the Boise-based Huntley Law Firm to review a gas lease signed by a Payette County resident with Bridge Energy — a company that went belly up, and had many of its leases subsequently snatched by Alta Mesa, Idaho.

Wallace reviewed a New York Bar Journal article and wrote the lease appears to affect the rights of property owners.

He gave several examples, including, “most of us have borrowed money secured by our property, or expect to sell it in the future. (a) We are required by law and good stewardship to protect it against the effects of hazardous materials. (b) These leases give the companies unfettered rights to cause permanent damage from hazardous activities, while (c) absolving them from fixing or even mitigating it.”

Another example Wallace provides specifically mentions risk to mortgages by drilling, “An owner (who) signing this lease might be in immediate default of many standard mortgages or deeds of trust.”

I spoke with Hasse in late July at the state Capitol about how participating in drilling activities (either voluntarily or forced) could put buyers in potential mortgage default.

The transcript to the interview is as follows:

Blair Koch: So, Alma you’ve been in real estate and mortgage. Tell me a little bit about your concerns with the industry and what happens there.

Alma Hasse: So in talking about the private property rights, most people don’t have the ability to go pay cash for their property, so most people have a mortgage on their home or their land. And those mortgages, 90 percent of those mortgages, have some sort of a government guarantee or insurance associated with them: FHA, VA, Fannie Mae, Freddie Mac. And in every Uniform Deed of Trust in which those mortgages use, if it has a guarantee or insurance that the government backs it has to have this Uniform Deed of Trust, there is paragraph in there titled “Hazardous Substances”, and that paragraph says that you, the buyer, can not do certain things to this property because this property is our, the lender’s security and collateral, and specifically, what that paragraph says is that you cannot do anything that could cause environmental contamination or degradation to our, the lender’s collateral.

And it goes even further. It actually says not only can you not do it to our property but you can’t do anything that could cause environmental contamination to your neighbor’s property as well.

And the very next paragraph is entitled “Acceleration Remedies”. So, not only can you not do these things, but if you do these things with our security, or this property, we can accelerate your note and call it due. We can find you in default and say you’ve got to come up with $150,000 to pay this off because you’re… you have just violated our contractual obligation.

Koch: And if you don’t, you could lose your home?

Hasse: Yeah. They could foreclose on you. They can find you in default and foreclose on you. Absolutely. Yeah.

Koch: And Im sure that these companies are aware of that clause?

Hasse: Well, they claim they are not. Mr. Peiserich (attorney for Alta Mesa Idaho and partner with Perkins, Peiserich, Greathouse, Morgan, Rankin of Little Rock, Arkansas) claimed he had never heard of it in a meeting in Payette County about three years ago but, at that point in time we had already seen lenders have problems getting new loans for potential buyers of property because there was a lease on the property. They would not loan. So, he claimed ignorance on it back then. He’s certainly aware of it now because I’ve brought it up multiple, multiple times. But, every time I bring it up in a meeting they don’t want to talk about it. Which is very interesting to me. Quite frankly I think we need to have a class-action lawsuit because they landsmen aren’t disclosing this at all. And what happens is, they’re making all these promises to people without their… they’re giving them information that is not factual. In fact in a lot of the cases they are flat out lying to people, telling them that signing this lease will have no impact on their private property rights, or their mortgage, or their insurance, and that is patently false. It can impact all of these.

Koch: So is your organization, is this part of the education that you are doing? Letting people know that signing a lease may impact their mortgage?

Hasse: Absolutely, absolutely. We had an overflow crowd of over 175 plus people in Gem County a couple weeks ago and people were astounded when they heard what the impacts to their mortgages could be because… and I heard it repeatedly — “well, you know the landsman never mentioned that to me”. And of course they don’t. If they told you the facts you’d never sign. So yeah, industry is trying to fly under the radar, not fully disclosing, and in a lot of case flat out lying about what the potential impacts of signing a lease to private property owners and/or their mortgages and insurance. They’re very good at that and we are trying to get accurate information out there so people can make informed decisions.

Koch: Thank you.