FHA Loan Underground Oil Tank

Multilevel house with an oil tankThe presence of an underground oil tank can trigger red flags for lenders due to potential environmental hazards and financial liabilities associated with their removal.

This article aims to shed light on the intricate dance between FHA loans and underground oil tanks, offering insights into how this buried treasure - or, instead, trouble - can impact your eligibility for government-backed mortgage assistance.

Join us as we navigate the murky waters surrounding this issue and uncover key considerations every prospective homebuyer must consider when dealing with an underground oil tank and its implications on their FHA loan journey.

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.


In conclusion, navigating the intersection of FHA loans and properties with underground oil tanks involves careful consideration of environmental hazards and compliance with FHA standards. The proximity of storage tanks, oil or gas wells, and abandoned wells can impact FHA eligibility, requiring thorough appraiser assessments and engagement with relevant authorities.

The potential dangers associated with gaseous hydrogen sulfide further emphasize the need for stringent evaluations to ensure public health, safety, and adherence to petroleum sector regulations.

For a seamless FHA loan journey, prospective homebuyers must address these considerations and take necessary actions, such as removing or properly abandoning abandoned tanks, to meet FHA requirements and ensure a property's marketability and value.

I strongly suggest that you discuss working or abandoned oil or gas wells with your lender before you make an offer on the property.


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