Environmental Issues In The Foreclosure Process


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Environmental Issues In The Foreclosure Process

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Environmental Issues In The Foreclosure Process

  1. 1. Environmental Issues In The Foreclosure Process Keith W. Turner Watkins Ludlam Winter & Stennis, P.A.
  2. 2. Environmental Risks Are Not Always Obvious
  3. 5. Environmental Conditions <ul><li>Underground storage tanks </li></ul><ul><li>Aboveground storage tanks </li></ul><ul><li>Soil and groundwater contamination </li></ul><ul><li>Hazardous wastes (drums, spills, etc.) </li></ul><ul><li>ACM </li></ul><ul><li>Lead in paint </li></ul><ul><li>Brownfields (known and unknown) </li></ul>
  4. 6. Liability Protection for Lenders <ul><li>Federal </li></ul><ul><li>State </li></ul><ul><li>Burden of proof on the lenders/party foreclosing </li></ul>
  5. 7. Federal Protections <ul><li>CERCLA – exclusion to “Owners or Operators” definition </li></ul><ul><ul><li>Section 101(E) </li></ul></ul><ul><ul><ul><li>Indicia of ownership to protect security </li></ul></ul></ul><ul><ul><ul><ul><li>Does not participate in management </li></ul></ul></ul></ul><ul><ul><ul><li>Foreclosure </li></ul></ul></ul><ul><ul><ul><ul><li>Did not participate in management prior to foreclosure </li></ul></ul></ul></ul>
  6. 8. State Protections <ul><li>MS Code Ann. Section 49-17-42 </li></ul><ul><ul><li>Consideration as &quot;owner&quot;; exemption from liability. </li></ul></ul><ul><ul><li>  (1)  Any lender or holder who maintains indicia of ownership primarily to protect an interest in a property, facility, or other person, and who does not participate in the management of the property, facility, or other person, shall not be considered an owner or operator of that property, facility, or other person, nor liable under any pollution control or other environmental protection law, or any rule or regulation or written order of the commission in pursuance thereof, for the prevention, clean-up, removal, remediation or abatement of any pollution, hazardous waste or solid waste placed, released or dumped on, in, about or near the property, facility or other person or caused by any operator on or of the property, facility or other person.  </li></ul></ul><ul><ul><li>(2)  This section shall apply to actions commenced by the commission or by third parties .  </li></ul></ul>
  7. 9. State Law <ul><li>In addition to statutory protection – </li></ul><ul><ul><li>Midsouth Rail Corporation v. Citizens Bank </li></ul></ul><ul><ul><ul><li>697 So2d 451 (1997) </li></ul></ul></ul><ul><ul><ul><li>Held - MS Code § 17-17-29(4) – does not impose liability on lenders </li></ul></ul></ul>
  8. 10. Assessment/Reassessment <ul><li>CERCLA § 101(35)(B) </li></ul><ul><ul><li>All Appropriate Inquiries </li></ul></ul><ul><ul><ul><li>By an “Environmental Professional” </li></ul></ul></ul><ul><ul><ul><li>Past and present owners </li></ul></ul></ul><ul><ul><ul><li>Historical resources – aerials, title, sanborn’s </li></ul></ul></ul><ul><ul><ul><li>Government records </li></ul></ul></ul><ul><ul><ul><ul><li>Consultant reliance on EDR </li></ul></ul></ul></ul><ul><ul><ul><li>Site inspections </li></ul></ul></ul><ul><ul><ul><li>40 CFR 312.20 </li></ul></ul></ul>
  9. 11. Assessment/Reassessment <ul><li>Phase I Environmental Site Assessments </li></ul><ul><ul><li>ASTM Standards </li></ul></ul><ul><ul><ul><li>E 1527-05 Phase I ESA </li></ul></ul></ul><ul><ul><ul><li>E 1528-00 Transaction Screening </li></ul></ul></ul><ul><ul><ul><li>E 1903-07 Phase II Site Assessment </li></ul></ul></ul><ul><ul><ul><li>E 2247-08 Phase I ESA for Forests and Rural Property </li></ul></ul></ul><ul><ul><ul><li>Remember these reports “expire” </li></ul></ul></ul>
  10. 12. State Protection <ul><li>EPA letter to MDEQ: CERCLA Section 128(b)(1) enforcement bar </li></ul><ul><ul><li>Bars federal enforcement if State Program is sufficient </li></ul></ul><ul><ul><ul><li>Three exceptions – </li></ul></ul></ul><ul><ul><ul><ul><li>State requests assistance </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Multi-state site (contamination across state line) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Immediate action necessary </li></ul></ul></ul></ul>
  11. 13. What do I need to do to stay protected ? <ul><li>Due Diligence (Phase I ESA etc) </li></ul><ul><li>Exercise appropriate care </li></ul><ul><ul><li>Address continuing releases </li></ul></ul><ul><ul><li>Prevent future releases </li></ul></ul><ul><ul><li>Prevent/limit exposures </li></ul></ul><ul><li>Seek to sell or re-lease or otherwise divest of the property </li></ul>
  12. 14. What if Phase I ESA indicates a possible Recognized Environmental Condition “REC”? <ul><li>Is a Phase II justified ? </li></ul><ul><li>What if the Phase II reveals contamination? </li></ul>
  13. 15. MDEQ Letters/Orders <ul><li>Status of property </li></ul><ul><ul><li>No Further Action letters </li></ul></ul><ul><ul><li>UST - Trust fund letters </li></ul></ul><ul><li>Orders </li></ul><ul><ul><li>Agreed Orders – site restrictions </li></ul></ul><ul><ul><li>Environmental Covenants </li></ul></ul>
  14. 16. Remember “participate in management” threshold <ul><li>Does not include – </li></ul><ul><ul><li>Capacity to influence </li></ul></ul><ul><ul><li>Holding security interest </li></ul></ul><ul><ul><li>Requiring environmental covenant or warranty </li></ul></ul><ul><ul><li>Monitoring or enforcing terms and conditions </li></ul></ul><ul><ul><li>Requiring response action – clean up </li></ul></ul><ul><ul><li>Providing advice </li></ul></ul><ul><ul><li>Exercising legal remedies </li></ul></ul>
  15. 17. If lender did not “participate in management prior to foreclosure, it can: <ul><li>Maintain business operations (to protect assets) </li></ul><ul><li>Operate business to wind-up </li></ul>
  16. 18. BUT - <ul><li>Any waste on the site or created during the operation/wind-up process must be shipped to proper facility – the waste manifest should be signed by the former borrower if possible – if not – proceed careful regarding disposal selection and transportation because the lender would be the liable party for this specific waste </li></ul>
  17. 19. Exercise appropriate care <ul><ul><li>Comply with all land use restrictions </li></ul></ul><ul><ul><li>Address any continuing releases </li></ul></ul><ul><ul><li>Prevent future releases </li></ul></ul><ul><ul><li>Prevent/limit exposures </li></ul></ul><ul><ul><li>Cooperate with federal and state agencies </li></ul></ul><ul><ul><ul><li>Including property access as necessary to investigate or take corrective action </li></ul></ul></ul>
  18. 20. Staying Protected – Efforts to Divest <ul><li>Divest at earliest “practicable, commercially reasonable time, on commercially reasonable terms, taking into account market conditions and legal and regulatory requirements” </li></ul><ul><ul><ul><li>CERCLA § 101(20)(E)(ii) </li></ul></ul></ul>
  19. 21. Staying Protected – Efforts to Divest <ul><li>Document all efforts to sell the property </li></ul><ul><ul><li>Listings </li></ul></ul><ul><ul><li>Inquiries </li></ul></ul><ul><ul><li>Showings </li></ul></ul><ul><ul><li>Issues raised by prospective buyers </li></ul></ul>
  20. 22. Using Environmental Consultants <ul><li>Selection </li></ul><ul><ul><li>Experience of the “Environmental Professional” – who is doing actual field work? </li></ul></ul><ul><li>Reports </li></ul><ul><ul><li>Review draft reports – consider language </li></ul></ul><ul><ul><ul><li>Reportable conditions </li></ul></ul></ul><ul><ul><ul><li>REC’s </li></ul></ul></ul><ul><li>Consultant Insurance </li></ul><ul><ul><li>Limitations on damages </li></ul></ul>
  21. 23. Using Environmental Consultants – cont. <ul><li>Liability </li></ul><ul><ul><li>Consultants negligence – compliance with ASTM </li></ul></ul><ul><li>Reliance letters </li></ul><ul><ul><li>Who can rely on the reports ? </li></ul></ul>
  22. 24. Phase II ESA Considerations <ul><li>Site impacts of soil and groundwater sampling </li></ul><ul><ul><li>Who is the generator of the sampling waste ? </li></ul></ul><ul><li>Access to adjacent properties </li></ul><ul><ul><li>Access agreements necessary ? </li></ul></ul><ul><li>What parameters should be analyzed? </li></ul><ul><ul><li>Lab costs can escalate quickly </li></ul></ul>
  23. 25. Brownfield Agreements <ul><li>MS Code Ann § 49-35-15(2)(e) </li></ul><ul><ul><li>Liability Protection </li></ul></ul><ul><ul><ul><li>Lender providing financing for remediation or redevelopment </li></ul></ul></ul>
  24. 26. Other Laws To Consider <ul><li>Resource Conservation and Recovery Act </li></ul><ul><ul><li>Solid and hazardous wastes </li></ul></ul><ul><li>Clean Water Act </li></ul><ul><ul><li>Wastewater, storm water and wetlands </li></ul></ul>
  25. 27. Other Issues <ul><li>16 th Section Land Leases </li></ul><ul><ul><li>MDEQ and SOS involvement </li></ul></ul><ul><li>Conflict between MS cleanup standard </li></ul><ul><ul><li>Proceed cautiously when AST’s are present </li></ul></ul><ul><ul><ul><li>UST Levels or TRG’s </li></ul></ul></ul><ul><li>Consultants use of EDR PARCEL </li></ul><ul><ul><li>Client confidentiality </li></ul></ul>
  26. 28. Examples <ul><li>AST quick stop </li></ul><ul><li>Former mill site </li></ul><ul><li>Failed residential development </li></ul><ul><li>Former AST and farm supply store </li></ul>
  27. 29. Former Brownfield
  28. 30. Questions ?