Lack of mineral rights puts some homebuyers in legal limbo

jmurawski@newsobserver.comNovember 12, 2012 

Decades ago, when few had heard of shale gas or fracking, major timber companies sold off enormous swaths of land in North Carolina. With a minor adjustment to the property deed, these companies retained the legal right to mine and drill hundreds of feet below the surface of the land they sold.

At the time, no one seemed to pay attention. Over the years the land changed hands and former woodlands bloomed into subdivisions and neighborhoods.

Today those areas have become legal mine fields. The debate over fracking has cast a shadow over any property where the homeowner has little legal say over what happens underground.

In some cases, residents have trouble buying and selling their property. Some financial institutions have stopped issuing loans for homes built in such areas, potentially affecting hundreds of thousands of acres in North Carolina.

Latasha Shannon waded into this legal tangle in the summer when buying a home in Jacksonville, about 120 miles southeast of Raleigh. With her belongings packed and just days remaining on her rental lease, the mother of two learned from the State Employees Credit Union, her mortgage lender, that the real estate transaction had run into a legal snag: Weyerhaeuser, a leading pulp and paper company, owned the “mineral rights” under the home Shannon wanted to buy.

Shannon eventually bought the home in Onslow County. She was lucky: The seller was willing to fork over $1,000 to Weyerhaeuser to buy back the mineral rights and reattach those rights to the property.

“The people who sold the house were very willing because they were in a bind and wanted to leave,” Shannon said. “It was a very stressful situation because I had to ask the landlord for more time.” If the landlord had not agreed, she said, she would have had to find some other accommodation.

It’s not clear how many people in the state are affected by this legal technicality, but the affected area could span hundreds of square miles.

Weyerhaeuser owns mineral rights below 155,000 acres in North Carolina and 7.1 million acres nationwide. The surface rights were sold off mostly in the 1970s and 1980s, and the mineral rights were kept for potential iron-ore deposits, said company spokeswoman Nancy Thompson.

To date, Weyerhaeuser has sold the rights back to about three or four potential homeowners in North Carolina, Thompson said. She said the $1,000 fee “was just our best internal estimate of administrative time and efforts to research, prepare, and release these properties.”

International Paper, another industry leader, couldn’t provide a estimate on the amount of land it sold while keeping the mineral rights. Spokesman Tom Ryan said “there is no easy calculation” of acreage in North Carolina. Any realistic estimate, he said, would require going through land records.The company sold 7.3 million acres of mineral rights nationwide in 2010 to BRP, a joint venture based in Texas. BRP officials could not be reached.

Most of the surface land is undeveloped, according to BRP’s website. The true value lies below.

“BRP will own and manage the reserves and will lease them to various companies in exchange for a royalty on the production from the property or a fee depending on the asset,” the company’s website says.

The State Employees Credit Union had for years financed potentially hundreds of homes that lacked mineral rights “because we didn’t really understand the issue,” said Spencer Scarboro, SECU’s senior vice president of loan originations.

With the emergence of fracking for natural gas in this state, SECU has stopped financing and refinancing homes without mineral rights. SECU considers it too risky to finance properties where underground rights can be developed into drilling operations, with the occupant having no say over the matter.

Fracking is industry shorthand for hydraulic fracturing, an intensive industrial process used to shatter shale rock below ground to release the natural gas and oil trapped inside. North Carolina has an estimated 1.7 trillion cubic feet of gas and oil, mostly concentrated in Lee, Moore and Chatham counties. The state legislature passed a moratorium on fracking this summer until state officials develop regulations to manage the process, which is expected to take at least two years.

Much of the former timberland lies in the eastern part of the state, where there is no trace of shale gas. But with the emergence of fracking, mineral rights have become a poison pill indifferent to geography.

This year, the mineral rights question has already come up about 15 times, Scarboro said, and those legal rights either had to be bought back from Weyerhaeuser, or the deals fell through.

“It’s taken on a whole different meaning with fracking,” Scarboro said. “Even if they don’t go in and do a fracking operation, the fact that they could is what would affect the market value of that property.”

Murawski: 919-829-8932

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