The StateEmployees' Credit Union said it now is one of a growing numberof financial institutions in some parts of the country that havestopped financing purchases of property whose owners have sold themineral rights.

The mineral rights have most often been sold to facilitateexploration and drilling for oil and natural gas, often through aprocedure known as hydraulic fracturing or fracking, which extractsoil and natural gas from primarily shale deposits with a mixture ofwater and chemicals forced underground at pressure.

“The issue is not fracking per se,” explained Jim Blaine, CEO of the1.86-million member, $26.9 billion credit union in Raleigh, N.C.“We take no position on that. The issues are whether buyers areaware that the mineral rights have been sold and what that might doto the value of the property.”

Blaine explained North Carolina is not at the center of the mainexploration area with the technique, but that the central part ofthe state has been found to have some oil and natural gas deposits,often in areas where coal was also mined during the 19th century,he said.

SECU began encountering the issue in its lending about two yearsago when some of its members found that property whose purchasethey were trying to finance had had its mineral rights sold, orsevered, Blaine explained.

A developer had been selling homes in the area and retaining themineral rights with an eye toward potential future profits fromtheir sale. SECU supported the passage of a state law which nowrequires every housing purchase contract say up front whether ornot the land still has its mineral rights and the developer hassince returned the mineral rights he had purchased back to the homeowners who had not realized they had been retained, Blaine said.But issues around mineral rights, fracking and housing financeremain largely unresolved.

SECU has stopped financing homes where the mineral rights havebeen severed because it considers those loans to be riskier thanthose where the mineral rights remain with the land, Blaineexplained.

Not only are there risks to ground water and from potentialspills, a house which was purchased as a single family home couldsuddenly become a residence very close to a potential industrialsite if a fracking operation moves in to start drilling, headded.

“We would consider homes in those circumstances at a higher riskof strategic default,” Blaine said, indicating the strategy wherehome owners simply walk away from properties where the value hasfallen too far beneath mortgage amount.

Other potential risks include what might happen to yourproperty's value if you don't sell your mineral rights, but yourneighbor does. “You still have to deal with a drilling operationand all that means where you didn't have to before,” Blainesaid.