One stick short

Updated: April 24, 2012

Updated to reflect that D.R. Horton's has given back mineral rights on 22 lots.

Updated: April 21, 2012

Updated to include D.R. Horton's response to questions about its disclosure practices.

Property is often defined as a bundle of rights which include the rights of possession, control, exclusion, enjoyment and disposition. These rights may all be held by one party but often are held by a variety of parties. For example, a farmer may own the right to live on his land and grow crops there but may have granted an easement to a third party to use a private road that runs across the farm and to a utility to place a transmission line on the farm.

The bundle of property rights

When someone purchases a house, he typically have his attorney review title to the land to determine what other parties may own an interest in the land. Recently a homebuyer in North Carolina noticed that the homebuilder had reserved the rights to minerals under the parcel including oil, gas, water, natural gas, and coal. While it is not unusual in certain regions of the country to discover that the mineral rights were separated from the rest of the property rights by some previous owner, that was not what happened here. This involved a national homebuilder, D. R. Horton, and was a new separation of mineral rights. Not only that but the mineral rights were then being transferred to an affiliate, DRH Energy Inc., to facilitate the future removal of such materials from below the surface of the homeowner’s land. One enterprising journalist has determined that this kind of transfer has occurred onĀ at least 425 lots in Wake, Durham and Chatham counties.

In responding to parallel inquiries by the N. C. Attorney General and the Real Estate Commission, D. R. Horton has stated that it makes multiple oral and written disclosures but will add an additional written disclosure that prospective buyers will have to sign before entering into a purchase agreement for a house. After further internal investigation, D. R. Horton has announced that it is giving back mineral rights on 22 lots on which it failed to make disclosures in the sales contracts.

This is a measure of the renewed interest in subsurface rights as a result of the widespread tracking activity to capture gas trapped in the Marcellus Shale formation. Given the emerging concerns about the environmental impacts of tracking, homeowners like this one are left to wonder whether the value of their property may be adversely affected if the party holding the mineral rights elects to exercise them in the future. Equally concerning is the possibility that the homeowner will have difficulty obtaining a mortgage since lenders such as the North Carolina Housing Financing Agency.