You probably figure that, when you buy a house, you also own the land on which it sits. Because of a growing but little-known practice, you might be wrong about that. Homebuilders are increasingly retaining the mineral rights beneath residential properties they sell, and then leasing them to oil and gas companies for fracking. DR Horton (NYSE: DHI ) makes use of this mechanism quite liberally, but it's not the only one: Beazer Homes (NYSE: BZH ) and other builders are using the tactic, as well.
In some cases, unsuspecting home buyers suffer the consequences before they even complete their home purchase. Some financial institutions have begun denying mortgages for properties where mineral rights have been severed, sometimes even declaring the buyer in default if the encumbrance comes to light after the home financing process is already under way. One insurance company has just announced that it will no longer cover fracking-related damages.
As homeowners gain awareness of this phenomenon, they get angry. In some cases, entire communities are up in arms. Their ire turns not only toward the homebuilders, but also toward the fracking companies that lease the land, including ConocoPhilips (NYSE: COP ) and Anadarko Petroleum (NYSE: APC ) . Communities feel misled, leading them to mistrust claims about fracking's safety.
In some states, this erosion in public confidence is coming home to roost in the form of anti-fracking ballot measures. Several cities in Colorado -- including Broomfield, Lafayette, Boulder, and Fort Collins -- have anti-fracking measures on their November ballots. Perhaps the voters in those cities heard about the Denver community where builder Oakwood homes leased out all the underlying land to Anadarko.
Should these ballot measures pass, they will impose a 5-year fracking moratorium on oil and gas companies in some areas. Surely that can't be good for business. As if to underscore that point, the Colorado Oil and Gas Association is spending more than $600,000 to combat these ballot measures.
Considering how controversial fracking already is, mineral rights retention could undermine it further in the public eye, while also taking down the reputations of the companies involved. Watch the video below to learn more about this under-the-radar issue that could have serious consequences.
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