Pub. 5 2015 Issue 2

“Participating in management” does not include (1) acting or failing to act prior to the creation of the security interest; (2) holding, abandoning or releasing a security interest; (3) including environmental compliance terms in the agreement relating to an extension, a covenant, a or warranty; (4) moni- toring or enforcing the security interest; (5) inspecting the facility; (6) requiring a response action; (7) providing advice or financial assistance to prevent diminution in value of the facility; (8) altering the terms of the security interest; or (9) conducting a response action. 42 U.S.C. § 9601 (20) (F) (iii) and (iv). A DDITIONAL PROTECTION A lender can further protect itself by properly conducting a Phase I site assessment (“ESA”) prior to foreclosure. The ESA will afford the lender the CERCLA defenses of the “innocent landowner,” “bona fide prospective purchaser,” or the “con- tiguous property owner.” 42 U.S.C. §§ 9601 (35), 9607 (b) (3), 9607 (q) (1) (A) and (C). The accepted industry standard for conducting an ESA is American Society for Testing and Materials (“ASTM”) Standard E 1527-13, and meeting it is key to establishing the CERCLA defenses. The “bona fide prospective purchaser” defense protects property acquired after January 11, 2002, and covers hazardous substances (not including petroleum and petroleum products) identified on a property prior to foreclosure. The “innocent landowner” defense is available when hazardous substances are found on a property after foreclosure where the lender performed the ESA prior to foreclosure and had no knowledge of or reason to know of on-site contamination. The “contiguous property owner” defense applies when hazardous substances migrate onto one’s property and the property owner had no reason to know of any source of such off-site contamination prior to foreclosure. While the "bona fide prospective purchaser", "innocent landowner", and "contiguous property owner" defenses limit liability, a purchaser must take further actions if hazard- ous substances are identified in the future, determined on a case-by-case basis. The exact protocol depends on the characteristics of the release, but generally includes and is not limited to: providing notice to the regulatory agencies, taking reasonable steps to stop any continuing release, preventing future releases, preventing or limiting exposure to hazardous substances on or from the property, and cooperating with any cleanup or restoration activities. V IABILITY In addition to meeting at least the ASTM standards, the ESA must be conducted within one year prior to the foreclo- sure. If title does not transfer within 180 days of the ESA, then the lender must update the government database search, the interviews, the site reconnaissance, and the environmental lien and activity and use limitation search. The update does not extend the one year viability of the ESA. A complete new ESA is required if the property is not sold within one year of the initial ESA. C ONCLUSION In the “I’ve got it” world, it’s important to know everything you’ve got. Understanding the risks and smartly conducting due diligence prior to foreclosure can provide invaluable pro- tection against environmental liability. w For more information, contact Barbara U. Rodriguez-Pashkowski at 602-257-7494 or bpashkowski@gustlaw.com. Barbara practices in the area of environmental law. She is a Partner and Chair of the Diversity Committee at Gust Rosenfeld P.L.C. Owner or operator liability does not attach to a lender with a security interest on a property as long as the lender does not participate in the management of the property. The problem arises when the lender says, figuratively, “I’ve got this” and participates in management. 9 SPRING 2015