DR Horton to stop taking drilling rights from N.C. homeowners

jmurawski@newsobserver.com April 25, 2012 

Homebuilder D.R. Horton said Tuesday that it will end a policy of assigning to itself the legal right to drill for natural gas under homes it sells in North Carolina.

In the wake of a public outcry and ongoing state reviews of the practice, the Texas-based company notified the N.C. Real Estate Commission that it will stop stripping drilling rights from property deeds. The company had been transferring those potentially lucrative rights to its subsidiary, DRH Energy.

The commission said the homebuilder has also agreed to return the drilling rights, upon request, to any homeowner whose rights are now owned by D.R. Horton.

D.R. Horton is the nation’s largest homebuilder and is believed to have systematically kept drilling rights to hundreds of homes sold in North Carolina in recent years. Many customers in North Carolina have complained that they had no idea that giving up their “mineral rights” referred to drilling and fracking for natural gas.

The real estate commission and the state Attorney General’s Consumer Protection Division have been reviewing whether D.R. Horton was adequately disclosing to customers that by buying homes, they were signing away their drilling rights in perpetuity. The company has said keeping those rights is standard practice and not controversial in much of the country.

But the state legislature is in the midst of a debate about legalizing fracking – a method of drilling for natural gas that has been controversial elsewhere – and opening up the state’s midsection to energy exploration. D.R. Horton was coming under increasing scrutiny for a policy that is largely unknown here.

Rights returning to owners

To some, the company appeared to be taking advantage of homebuyers’ lack of understanding of the consequences of arcane provisions in their deeds.

“By following procedures that it routinely follows elsewhere in the nation, Horton has unwittingly stepped to the forefront of a brewing controversy in the state, and become a ‘test case’ on this issue,” the company notified the real estate commission in a written statement. “Therefore, commencing immediately, Horton will suspend its practice of retaining mineral rights not previously retained by prior owners from properties it has acquired or it acquires in North Carolina.”

As of Tuesday afternoon, D.R. Horton has returned mineral rights to 58 properties in Durham County and Guilford County, company spokeswoman Jessica Hansen said. In those cases, affecting the Swann’s Mill and Carillon Forest subdivisions in Durham, the company acknowledged it did not properly notify homebuyers that it was taking their legal rights to drill under their properties.

Michael Lawlor, who bought a home in Swann’s Mill this year, was relieved his mineral rights had been restored by the company. He believes the company was taking unfair advantage of its customers.

“They knew exactly what they were doing,” he said.

Lawlor said he didn’t learn about the mineral-rights provision until the day he closed on his home. He doesn’t recall any discussion of drilling for natural gas or fracking.

Homeowners typically give up their drilling rights in exchange for lease fees, sometimes hundreds of dollars per acre, and substantial royalties on any natural gas extracted from under their land. D.R. Horton, however, was accumulating rights to drill in this state without paying property owners.

The company said last week that it began keeping drilling rights in North Carolina in 2007, but in some areas of the state, the policy was not implemented until 2010. By that year, it had been widely publicized that North Carolina could have a 40-year reserve of natural gas trapped in prehistoric shale rock formations concentrated in Lee, Moore and Chatham counties.

Fracking, a shorthand for hydraulic fracturing, is illegal in this state, but some lawmakers are eager to legalize the practice and tap into a plentiful resource of affordable domestic fuel. If North Carolina’s law is changed, D.R. Horton would have been sitting on a potential energy gold mine, leaving homeowners with little say about energy exploration under their homes. Fracking rigs could be set up more than a mile outside a neighborhood, and the gas could be accessed horizontally underground.

The company told the real estate commission it could “revisit the issue” of keeping mineral rights once the legislature enacts laws and the controversy dies down.

“Horton is not in the mining business,” the company said in its statement.

“Horton does not want to create or contribute to any controversy regarding matters that are undergoing consideration by the North Carolina legislature or any of its agencies.”

Murawski: 919-829-8932

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