Environmental Issues In Environmental Issues In The Foreclosure The Foreclosure

ProcessProcess

Keith W. TurnerKeith W. Turner

Watkins Ludlam Winter & Stennis, Watkins Ludlam Winter & Stennis, P.A.P.A.

Environmental Risks Are Not Environmental Risks Are Not Always ObviousAlways Obvious

Environmental ConditionsEnvironmental Conditions

Underground storage tanksUnderground storage tanks Aboveground storage tanksAboveground storage tanks Soil and groundwater contaminationSoil and groundwater contamination Hazardous wastes (drums, spills, etc.)Hazardous wastes (drums, spills, etc.) ACMACM Lead in paintLead in paint

Brownfields (known and unknown)Brownfields (known and unknown)

Liability Protection for LendersLiability Protection for Lenders

FederalFederal

StateState

Burden of proof on the lenders/party Burden of proof on the lenders/party foreclosingforeclosing

Federal ProtectionsFederal Protections

CERCLA – exclusion to “Owners or CERCLA – exclusion to “Owners or Operators” definitionOperators” definition Section 101(E) Section 101(E)

• Indicia of ownership to protect securityIndicia of ownership to protect security Does not participate in managementDoes not participate in management

• ForeclosureForeclosure Did not participate in management prior to foreclosureDid not participate in management prior to foreclosure

State ProtectionsState Protections MS Code Ann. Section 49-17-42MS Code Ann. Section 49-17-42

Consideration as "owner"; exemption from liability.Consideration as "owner"; exemption from liability.

  (1)  Any lender or holder who maintains indicia of ownership (1)  Any lender or holder who maintains indicia of ownership primarily to protect an interest in a property, facility, or other primarily to protect an interest in a property, facility, or other person, and who does not participate in the management of the person, and who does not participate in the management of the property, facility, or other person, shall not be considered an property, facility, or other person, shall not be considered an owner or operator of that property, facility, or other person, nor owner or operator of that property, facility, or other person, nor liable under any pollution control or other environmental liable under any pollution control or other environmental protection law, or any rule or regulation or written order of the protection law, or any rule or regulation or written order of the commission in pursuance thereof, for the prevention, clean-up, commission in pursuance thereof, for the prevention, clean-up, removal, remediation or abatement of any pollution, hazardous removal, remediation or abatement of any pollution, hazardous waste or solid waste placed, released or dumped on, in, about or waste or solid waste placed, released or dumped on, in, about or near the property, facility or other person or caused by any near the property, facility or other person or caused by any operator on or of the property, facility or other person. operator on or of the property, facility or other person. 

(2)  This section shall apply to actions commenced by the (2)  This section shall apply to actions commenced by the commission or commission or by third partiesby third parties.  . 

State LawState Law

In addition to statutory protection – In addition to statutory protection – Midsouth Rail Corporation v. Citizens BankMidsouth Rail Corporation v. Citizens Bank

• 697 So2d 451 (1997) 697 So2d 451 (1997)

• Held - MS Code Held - MS Code §§17-17-29(4) – does not impose 17-17-29(4) – does not impose liability on lenders liability on lenders

Assessment/ReassessmentAssessment/Reassessment

CERCLA CERCLA § 101(35)(B)§ 101(35)(B) All Appropriate InquiriesAll Appropriate Inquiries

• By an “Environmental Professional”By an “Environmental Professional”• Past and present ownersPast and present owners• Historical resources – aerials, title, sanborn’sHistorical resources – aerials, title, sanborn’s• Government recordsGovernment records

Consultant reliance on EDRConsultant reliance on EDR

• Site inspectionsSite inspections

• 40 CFR 312.2040 CFR 312.20

Assessment/ReassessmentAssessment/Reassessment

Phase I Environmental Site AssessmentsPhase I Environmental Site Assessments ASTM StandardsASTM Standards

• E 1527-05 Phase I ESAE 1527-05 Phase I ESA• E 1528-00 Transaction ScreeningE 1528-00 Transaction Screening• E 1903-07 Phase II Site AssessmentE 1903-07 Phase II Site Assessment• E 2247-08 Phase I ESA for Forests and Rural E 2247-08 Phase I ESA for Forests and Rural

PropertyProperty

• Remember these reports “expire”Remember these reports “expire”

State ProtectionState Protection

EPA letter to MDEQ: CERCLA Section EPA letter to MDEQ: CERCLA Section 128(b)(1) enforcement bar128(b)(1) enforcement bar Bars federal enforcement if State Program is Bars federal enforcement if State Program is

sufficientsufficient• Three exceptions –Three exceptions –

State requests assistanceState requests assistance Multi-state site (contamination across state line)Multi-state site (contamination across state line) Immediate action necessaryImmediate action necessary

What do I need to do to stay What do I need to do to stay protected ?protected ?

Due Diligence (Phase I ESA etc)Due Diligence (Phase I ESA etc)

Exercise appropriate careExercise appropriate care Address continuing releasesAddress continuing releases Prevent future releasesPrevent future releases Prevent/limit exposuresPrevent/limit exposures

Seek to sell or re-lease or otherwise divest of the Seek to sell or re-lease or otherwise divest of the propertyproperty

What if Phase I ESA indicates a What if Phase I ESA indicates a possible Recognized possible Recognized

Environmental Condition “REC”?Environmental Condition “REC”?

Is a Phase II justified ?Is a Phase II justified ?

What if the Phase II reveals What if the Phase II reveals contamination? contamination?

MDEQ Letters/OrdersMDEQ Letters/Orders

Status of property Status of property No Further Action lettersNo Further Action letters UST - Trust fund lettersUST - Trust fund letters

OrdersOrders Agreed Orders – site restrictionsAgreed Orders – site restrictions Environmental CovenantsEnvironmental Covenants

Remember “participate in Remember “participate in management” thresholdmanagement” threshold

Does not include –Does not include – Capacity to influenceCapacity to influence Holding security interestHolding security interest Requiring environmental covenant or warrantyRequiring environmental covenant or warranty Monitoring or enforcing terms and conditionsMonitoring or enforcing terms and conditions Requiring response action – clean upRequiring response action – clean up Providing adviceProviding advice Exercising legal remediesExercising legal remedies

If lender did not “participate in If lender did not “participate in management prior to foreclosure, management prior to foreclosure,

it can:it can:

Maintain business operations (to protect Maintain business operations (to protect assets)assets)

Operate business to wind-up Operate business to wind-up

BUT - BUT -

Any waste on the site or created during Any waste on the site or created during the operation/wind-up process must be the operation/wind-up process must be shipped to proper facility – shipped to proper facility – the waste the waste manifest should be signed by the former manifest should be signed by the former borrower if possibleborrower if possible – if not – proceed – if not – proceed careful regarding disposal selection and careful regarding disposal selection and transportation because the lender would transportation because the lender would be the liable party for this specific wastebe the liable party for this specific waste

Exercise appropriate careExercise appropriate care

Comply with all land use restrictionsComply with all land use restrictions Address any continuing releasesAddress any continuing releases Prevent future releasesPrevent future releases Prevent/limit exposuresPrevent/limit exposures Cooperate with federal and state agenciesCooperate with federal and state agencies

• Including property access as necessary to Including property access as necessary to investigate or take corrective actioninvestigate or take corrective action

Staying Protected – Efforts to Staying Protected – Efforts to DivestDivest

Divest at earliest “practicable, Divest at earliest “practicable, commercially reasonable time, on commercially reasonable time, on commercially reasonable terms, taking into commercially reasonable terms, taking into account market conditions and legal and account market conditions and legal and regulatory requirements”regulatory requirements”

• CERCLA §CERCLA §101(20)(E)(ii)101(20)(E)(ii)

Staying Protected – Efforts to Staying Protected – Efforts to DivestDivest

Document all efforts to sell the propertyDocument all efforts to sell the property ListingsListings InquiriesInquiries ShowingsShowings Issues raised by prospective buyersIssues raised by prospective buyers

Using Environmental ConsultantsUsing Environmental Consultants

SelectionSelection Experience of the “Environmental Professional” – who Experience of the “Environmental Professional” – who

is doing actual field work?is doing actual field work?

ReportsReports Review draft reports – consider languageReview draft reports – consider language

• Reportable conditionsReportable conditions• REC’s REC’s

Consultant Insurance Consultant Insurance Limitations on damagesLimitations on damages

Using Environmental Consultants – Using Environmental Consultants – cont.cont.

LiabilityLiability Consultants negligence – compliance with Consultants negligence – compliance with

ASTMASTM Reliance lettersReliance letters

Who can rely on the reports ?Who can rely on the reports ?

Phase II ESA ConsiderationsPhase II ESA Considerations

Site impacts of soil and groundwater Site impacts of soil and groundwater samplingsampling Who is the generator of the sampling waste ?Who is the generator of the sampling waste ?

Access to adjacent propertiesAccess to adjacent properties Access agreements necessary ?Access agreements necessary ?

What parameters should be analyzed?What parameters should be analyzed? Lab costs can escalate quicklyLab costs can escalate quickly

Brownfield AgreementsBrownfield Agreements

MS Code Ann MS Code Ann § 49-35-15(2)(e)§ 49-35-15(2)(e) Liability ProtectionLiability Protection

• Lender providing financing for remediation or Lender providing financing for remediation or redevelopmentredevelopment

Other Laws To ConsiderOther Laws To Consider

Resource Conservation and Recovery ActResource Conservation and Recovery Act Solid and hazardous wastes Solid and hazardous wastes

Clean Water ActClean Water Act Wastewater, storm water and wetlandsWastewater, storm water and wetlands

Other IssuesOther Issues

1616thth Section Land Leases Section Land Leases MDEQ and SOS involvementMDEQ and SOS involvement

Conflict between MS cleanup standardConflict between MS cleanup standard Proceed cautiously when AST’s are presentProceed cautiously when AST’s are present

• UST Levels or TRG’sUST Levels or TRG’s

Consultants use of EDR PARCELConsultants use of EDR PARCEL Client confidentialityClient confidentiality

ExamplesExamples

AST quick stopAST quick stop Former mill siteFormer mill site Failed residential development Failed residential development Former AST and farm supply storeFormer AST and farm supply store

Former BrownfieldFormer Brownfield

Questions ?