FHA Loans and Underground Oil Tanks

When purchasing a home with an FHA loan, certain factors can impact the approval process. One of these factors is the presence of underground oil tanks on the property. This article explores how underground oil tanks can affect your ability to secure an FHA loan and what steps you can take to mitigate any potential issues. Whether you are a first-time homebuyer or a seasoned homeowner, understanding the implications of underground oil tanks is essential when working through the FHA loan process.

Stationary Storage Tanks

The property does not qualify for FHA insurance if the subject property line is 300 feet or less from an above-ground, stationary storage tank that can hold 1,000 gallons or more of flammable or explosive material.

The appraiser must also notify the mortgagee (lender) of the property's lack of Minimum Property Standards (MPS) and Minimum Property Requirements (MPR).

Oil or Gas Wells

Operating or Proposed Wells

The appraiser must measure the distance from the home and search the property for any easily visible signs of an oil or gas well.

Suppose the residence is within 75 feet of an existing or prospective well. In that case, the appraiser must advise the mortgagee (lender) of the inadequacy of Minimum Property Standards (MPS) or Minimum Property Requirements (MPR).

The appraiser measures the distance from the residence to the site border rather than measuring from the actual well site. If a new construction home is 75 feet or less from an active gas or oil well, the mortgagee must reject the property until mitigation is finished.

Abandoned Oil or Gas Wells

The appraiser must halt work and inform the mortgagee if they discover an abandoned gas or oil well on the subject site or nearby property.

The appraiser may return to work when the mortgagee presents a letter from the relevant state agency or municipal authority certifying that the subject well was safely and permanently abandoned.

If the property has any abandoned petroleum product wells, the mortgagee must guarantee that the property has been examined and the risk evaluated by a competent petroleum engineer. The relevant state authorities must also approve the recommendations for clearance.

A petroleum engineer must determine the necessary clearance before the appraiser can finish working on a property close to a gas well that releases hydrogen sulfide. The appraiser must evaluate any effects the well's placement may have on the property's marketability and worth.

If an underground tank has been abandoned, workers must remove it or adequately abandon it according to any relevant removal regulations and recommendations.

Hydrogen Sulfide

Gaseous hydrogen sulfide released from petroleum product wells is dangerous and poisonous. Only once a petroleum engineer has evaluated the danger and state authorities have agreed on clearance recommendations for public health and safety and petroleum sector regulation can a minimum clearance from sour gas wells be set.

The appraiser can assess a property only when the mortgagee (lender) has requested an examination by a competent individual and given proof that the necessary clearance has been acquired.

Summary: FHA Loan and Underground Oil Tanks

The presence of underground oil tanks can impact the approval process for an FHA loan when purchasing a home. Prospective buyers should be aware of this potential red flag and take proactive steps to address any issues that may arise. Whether through removal, abandonment, or proper documentation, mitigating the risks associated with underground oil tanks can help streamline the loan approval process and create a smoother transaction.

By staying informed and working closely with lenders and real estate professionals, homebuyers can work through these challenges effectively and achieve their homeownership goals with confidence. Make sure to conduct thorough inspections and due diligence before finalizing your purchase to avoid any surprises down the line.