Home builder D.R. Horton, responding to parallel state inquiries about questionable sales practices, said Friday it would start making clear to potential homebuyers that the company keeps for itself the rights to drill for natural gas under homes it sells in North Carolina.
The Texas-based company’s practice of systematically stripping the properties it sells of drilling rights is unfamiliar in this state and is being reviewed by the N.C. Attorney General and the N.C. Real Estate Commission. At issue is whether homebuyers understood that by giving up their “mineral rights” – apparently without receiving financial compensation – they signed away the right to mine and drill under their homes in perpetuity.
The homebuilder’s sales practices have come to light as state legislators debate legalizing natural gas exploration using a technique called fracking and horizontal drilling. The process allows for drilling more than a mile sideways and pumps high-pressure water and chemicals to fracture shale rock, releasing natural gas that has been trapped for millions of years.
D.R. Horton notified the AG’s office this week that it already provides homebuyers multiple disclosures: orally by its sales agents and also spelled out in home purchase agreements and general closing disclosures. But the company said it is now including a separate written disclosure for homebuyers to sign.
The Real Estate Commission, which licenses D.R. Horton, could take no action or suspend or revoke the company’s license, said Janet Thoren, the Real Estate Commission’s legal counsel.
“D.R. Horton appears to have been making a disclosure in their contracts,” Thoren said. “We’ll look at whether that disclosure was made in all cases, and whether the disclosure being made is adequate.”
But Brian Young doesn’t recall any disclosures from D.R. Horton when he bought his $330,000 home from the company last year in Chatham County. He said he found out about the mineral rights provision only from his real estate agent and bought the home believing there are no minerals in this part of the state.
“Had I known there was a process that existed called fracking and they could horizontally drill under my house, I would be a little concerned about it,” Young said. “I may have said, ‘This sounds fishy and I don’t want to be a part of it.’ I honestly don’t know what I would have done.”
According to the statement issued Friday, D.R. Horton began keeping underground drilling rights in this state in 2007, noting that “the practice did not begin in some areas until 2010.” The company systematically transfers the drilling rights to its subsidiary, DRH Energy, giving it “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 the Triangle. The company is the nation’s largest homebuilder. The mineral rights issue potentially affects hundreds of homes built and sold in the state in recent years.
The AG’s office this week issued a public advisory warning homebuyers that properties stripped of their mineral rights could be harder to refinance and could lose value at resale.
The company’s statement said it retains minerals in many areas of the country, including North Carolina, “where we do not believe currently commercially producible minerals have been found.”
Many suspect that D.R. Horton has been quietly amassing a potential energy goldmine. Amid a general shale gas fracking frenzy in this country, the N.C. Geological Survey in recent years has been widely publicizing an estimated 40-year supply of natural gas concentrated in Lee, Moore and Chatham counties. The shale gas discovery here has prompted efforts in the state to legalize fracking, while others have vowed to delay or block the practice.
Bert Garrido considered buying a D.R. Horton home last year, going so far as making a down payment. He said he didn’t learn about the mineral rights issue until he asked to see a sales contract.
“If you didn’t ask, they didn’t tell you much of anything,” said Garrido, who ended up not buying the home. “They said, ‘Don’t worry, there are no mineral rights here. This is a Texas company, and this is their standard contract.’”
Staff writer David Bracken contributed to this report.