New Homes Sold Without Underground Rights Spur Fracking Fears

Bert Garrido, a Florida transplant who bought a $400,000 home last year in upper Chatham County, is already having neighbor tensions in his newly adopted state. His concerns are of the sort that have never been experienced in North Carolina, and dovetail with this state’s contentious debate about fracking.

Garrido’s neighbors in the Legends Oaks subdivision are signing home purchase contracts that give up their rights for drilling natural gas to the company that built the homes. Texas-based D.R. Horton, the nation’s largest homebuilder, is then transferring those exploration rights en masse to its subsidiary, DRH Energy.

The homebuilder’s deed restriction potentially plays out across dozens of subdivisions and hundreds of homes built by D.R. Horton throughout the state. The terms give DRH Energy, also based in Texas, “the perpetual right to drill, mine, explore … and remove any of the subsurface resources on or from the property by any means whatsoever,” according to property deeds filed in Chatham, Wake and Durham counties.

Now Garrido is surrounded by neighbors who will have no say about natural gas drilling under their homes.

“If we ever want to sell our house, it’s going to hurt us,” said Garrido. “It’s just the perception, even if they never exercise those rights.”

It’s not clear why D.R. Horton is selling homes stripped of mineral rights, or whether the company hopes to profit from a natural gas bonanza in the Triangle and elsewhere. Company representatives did not return repeated calls and emails to its division office in Morrisville.

But D.R. Horton’s policy taps into lingering concerns among critics that fracking will exploit the environment and harm the public. Fracking is a shorthand for hydraulic fracturing, an aggressive method of mining natural gas by pumping millions of gallons of water mixed with chemicals deep underground to break up the prehistoric shale rock that traps the natural gas.

Fracking is currently illegal in North Carolina, but the state legislature is set to debate legalizing it as early as this summer, even as some lawmakers have vowed to delay fracking with further studies on potential risks. Gov. Bev Perdue has already come out in favor of fracking, and the N.C. Department of Environment and Natural Resources recently issued a lengthy study concluding fracking can be done safely as long as the right safeguards are put in place.

Just over half the 59 homes built or planned for Legend Oaks are by D.R. Horton. The others, including Garrido’s, are built by Orleans Homebuilders, a Pennsylvania-based company that does not keep the drilling and energy exploration rights under homes it sells.

For the D.R. Horton homes, however, the problem may go beyond perceptions. Those homes, stripped of their exploration rights, could be harder to refinance and resell because some lenders won’t back a mortgage for a property that doesn’t come with “mineral rights,” the legal term for the right to mine, drill and explore beneath a property.

The State Employees Credit Union is among those that won’t underwrite homes without mineral rights “because of the potential danger” of property damage, water contamination and other risks that could cause property values to sink, said Spencer Scarboro, SECU’s senior vice president of loan originations.

“We’re putting our branches on notice to be looking for it anytime where D.R. Horton is the seller,” Scarboro said. “It’s just a small little blurb in the contract. It’s easily missed if you’re not looking for it.”

In this state, homeowners typically own the rights below and above their properties. Some, who have already leased their land in the event that fracking is legalized, stand to receive royalty payments on any natural gas extracted under their properties.

Those who signed away their mineral rights will receive nothing if DRH Energy taps into a payload of natural gas below their subdivision.

According to property records, D.R. Horton began in 2010 systematically keeping the mineral rights starting at 500 feet below homes it sells. The policy change took place not long after geologists announced that this state sits atop an estimated 40-year supply of natural gas trapped in underground shale rock formations, much of it believed to be concentrated in Lee, Moore and Chatham counties.

“I wonder how many homes they would sell if they clearly told people what they’re doing,” said Larry Tollen, a real estate broker who has been selling Orleans-built homes in Legend Oaks. He said the homes in the upscale subdivision range from $310,000 to $700,000, some being as large as 5,200 square feet.

At least some property owners say they are not concerned about it, however. Brian Young, who bought a $330,000 D.R. Horton home in Legend Oaks last May, said his real estate agent and lawyer told him the mineral rights clause is a non-issue.

“There’s no minerals to be found there anyway,” Young said. “I think the assumption that we made was that with D.R. Horton being based in Texas this is a much more common thing in Texas than it is here.”

Brantley Powell, the developer of Legend Oaks, said the homeowner association covenants and restrictions prohibit disruptive commercial activity in the subdivision.

However, with horizontal drilling, drillers could set up operations hundreds of feet away and drill sideways under the subdivision.

Still, Powell said he is confident Legend Oaks is safe from fracking. Powell, president and owner of Raleigh-based HBP Properties, said he learned just recently of D.R. Horton’s practice to retain mineral rights.

He would not comment on it beyond saying “it could have been handled in a better way.”