Lender Liability Under Environmental Laws in Real Estate Transactions


Summary

This practice note discusses the risks that real estate lenders and other secured creditors face under various environmental laws and offers practical advice for mitigating such risks. There are several reasons why lenders need to remain vigilant regarding environmental risks. First, a borrower’s potential environmental costs and liabilities, particularly those associated with remediating contaminated sites and achieving and maintaining compliance with environmental laws, can be significant and impact cash flow and, therefore, adversely impact a borrower’s ability to repay its loan. In addition, environmental laws can impose liability risk on mortgage lenders and other secured creditors who foreclose and repossess property used to secure loans and run afoul of the statutory safe harbors available under such laws. Finally, lenders may not want to foreclose on contaminated property that cannot later be sold, or even be associated with contaminated property that may be stigmatized or pose...