Distressed Properties and Environmental Liability: To Foreclose or Not to Foreclose, That is the Question
Lane Powell Attorneys Mike Nesteroff and Andy Rigel authored an article in the May/June 2012 issue of Washington Bankers Association’s (“WBA”) Issues and Answers magazine titled “Distressed Properties and Environmental Liability: To Foreclose or Not to Foreclose, That is the Question.” In the article, Nesteroff and Rigel discussed critical environmental liability issues financial institutions may encounter with properties that are facing foreclosure or that are foreclosed.
In today’s real estate market one of the critical issues financial institutions face is the scope and extent of environmental liabilities arising out of properties that are, or may be, foreclosed. When the collateral has environmental contamination, the lender is faced with a take-it-or-leave-it dilemma, either of which poses significant financial risk. Taking a property in foreclosure may result in the lender bearing substantial costs of cleanup and regulatory compliance just to sell in a market where property values may still be depressed. If the lender does not foreclose, then it loses its investment in the loan. Often, however, it’s not clear that property is contaminated, which makes it imperative not to wait until the end of the foreclosure decision process to find out whether and how much cleanup might be necessary.