Lenders Beware: Environmental Conditions At Distressed Property Pose Risks For Foreclosing Lenders

Foreclosing lenders can be assessed liability for environmental conditions on distressed property under a variety of federal, state, common, and municipal laws. Environmental lender liability is most frequently discussed in the context of the federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA").¹ Liability may also be imposed under other environmental laws, many of which lack CERCLA's more lender-friendly provisions.² With foreclosure rates at record highs across the country, lenders must be especially vigilant to identify potential liabilities and, where appropriate, take action to ensure that those liabilities are avoided. In addition to CERCLA, this alert identifies some of the other environmental liability traps that lenders can face when foreclosing on real property.