KEY CONCLUSION: Recent requirements make it much more difficult to finance properties contaminated from off-site sources. There have been recent developments in requirements for financing of properties contaminated from off-site sources.
In the past, there have been lending institutions that have financed properties that were known to be contaminated if it could be conclusively determined the subject property itself did not contribute to the underlying contamination. SBA loans could be obtained for off-site contamination with an appropriate “comfort letter” from the local regulatory agency. In this case, a Phase 1 report would be submitted to the agency who could then agree in writing the subject property itself did not contribute to the contamination underlying it.
In ERAS recent experience, many of the banks and lending institutions are not financing property that is known to be contaminated from any source, even from off-site. There are no significant changes to the requirements for SBA. However, the regulatory agencies are more often asking for expensive Phase 2 investigations to demonstrate or verify the Property is contaminated and whether it has contributed to the contamination.
Most likely, the agencies are requesting this because 1) they have no funding and many responsible parties are not investigating their sites due to their own lack of funds and 2) due to budget cuts which does not allow the time to prepare comfort letters. Beside the cost to the owner, there is also potential financial liability if there are “skeletons in the closet” (unknown contamination) associated with the Property itself ERAS is currently working with several regulatory agencies to provide comfort letters for properties impacted by solvents in groundwater from off-site sources. Some of these sites have the potential to have contributed to the contamination due to past uses. ERAS recently has even been asked to write the comfort letter to be approved by the local regulators. Note that the comfort letter process is extensive but once issued, there is little risk of future liability for the current or previous owners.