Environmental Aspects Clouding Real Estate Transactions

Article excerpt

Environmental aspects today are clouding what once were pure and simple real estate transactions.

No longer is a cursory inspection of property or buildings enough when purchasing, or even foreclosing, real estate. Many new owners have found themselves in the position of paying to clean up toxic waste spills which were the fault of a prior owner.

"Federal and state regulators place the responsibility for any environmental cleanup on the owner, regardless of when the property was acquired," said Bill Weston, a partner of Phaedrus Associates Inc. of Midwest City.

Mark Coleman, deputy commissioner of the Oklahoma State Department of Health, said a buyer should investigate to determine how the land was used by prior owners.

"I'd say that it behooves a person who is buying land to determine just how that land was used," he said, "and to study all its records before committing to a contract."

Weston, whose company provides environmental audits, said many costly errors could have been prevented if the buyer had commissioned an audit before purchasing.

"There is one property we're working on now where a company bought a landfill, then less than a month later the license was not renewed," Weston said. "When state health people investigated the property, they found that portions which were closed earlier had not been covered properly and run-off had contaminated the ground water.

"The new owner, who paid about $80,000 for the property, already has spent more than $500,000 cleaning up and we're not through yet."

Raymond W. Kane, chief operating officer of Hart Environmental Management Corp. of New York City, said the finance industry has learned firsthand the problems of cleaning toxic chemical spills.

"Most states have taken the position that it's the owner's responsibility to clean up any spill, regardless of who caused it," he said. "They (lenders) found that out when the property was foreclosed and the lending institution had to bear the costs of cleaning up spills caused by someone else."

Weston said a bank in Norman recently spent more than $100,000 to clean a chemical spill left by a former occupant.

"The bank made a loan of $28,000 to a business which reclaimed the silver content from X-ray and photographic negatives," Weston said. "When the bank foreclosed on this $28,000 mortgage, they found all sorts of contaminates in the back yard.

"It's taken that bank three years to complete all the details, including legal fees and paperwork."

Both men said an audit before foreclosure would have saved the bank money.

"Even if they had to pay a couple of thousand dollars for a company to investigate, they could have saved a lot of money," Weston said. "The audit would have shown them exactly what problem existed and what their responsibility was. Then, the bank could have walked away from the deal, writing off the loan as a bad business deal."

Kane said potential buyers should investigate, or at least insist upon a clause in the contract which frees the buyer from all liability.

Yet Keith Stanley, of Stanley Engineering Inc. of Oklahoma City, said often a clause in the contract will not be enough.

"Personally, I wouldn't trust that," he said. "I'd insist upon an audit before buying, that way I'd know exactly what was on the property, what was required and the extent of any financial liablility."

Stanley, whose company specializes in environmental engineering, said the penalty in environmental clean up can be excessive.

"If the Evironmental Protection Agency invokes the superfund, the penalty can be triple the clean up cost," he said.

Weston said often the clean up cost is in the millions of dollars, which could add up to a high fine.

"It's not so much a fine as a penalty," said Coleman, whose department oversees environmental affairs in Oklahoma. …