FHA Loan and Underground Oil Tanks

Multilevel house with an oil tankWhen purchasing a home with an FHA loan, there are certain factors that can impact the approval process. One of these factors is the presence of underground oil tanks on the property. In this article, we will explore 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 crucial when navigating the FHA loan process.

Stationary Storage Tanks

The property is not eligible 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 is also required to 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

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).

Instead of measuring from the actual healthy site, the distance is measured from the residence to the site border. 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.

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

Suppose the Property has any abandoned petroleum product wells. In that case, the Mortgagee must guarantee that the Property has been examined, the risk evaluated by a competent petroleum engineer, and that the relevant state authorities have approved 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, it must be removed or adequately abandoned (according to any relevant removal regulations and recommendations).

Hydrogen Sulfide

Gaseous hydrogen sulfide is released from petroleum product wells and 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.

Only when the Mortgagee (lender) has requested an examination by a competent individual and given proof that the necessary clearance has been acquired can the Appraiser assess a property.

Conclusion: FHA Loan and Underground Oil Tanks

In conclusion, the presence of underground oil tanks can significantly impact the approval process for an FHA loan when purchasing a home. It is important for prospective buyers to 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 ensure a smoother transaction.

By staying informed and working closely with lenders and real estate professionals, homebuyers can navigate 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.


Appraiser and Property Requirements for Title II Forward and Reverse Mortgages
Handbook 4000.1 580 Page 579-580
Last Revised: 11/09/2021