Environmental Due Environmental Due Diligence Diligence Meth Labs &Meth Labs &

Underground Storage TanksUnderground Storage Tanks

Environmental Due DiligenceEnvironmental Due Diligence

… is the process of inquiring into the environmental condition of the real estate to determine the presence of contamination from hazardous wastes and petroleum products, and to determine what impact such contamination may have on the market value of the property.

Why do Environmental Due Why do Environmental Due Diligence?Diligence?

Preserve the continued marketability of the property (Salability)

Protect the health and safety of the occupants (Safety)

Protect the security of the property (Security)

Note: Environmental Due Diligence NOT required under WEP

Due Diligence Requirements:

Direct Single Family At Loan Making (See HB 3550 Attachment 5-B Single Family Housing Site Checklist) and Before Foreclosure).

Guaranteed Single Family by Lenders per HUD Form VC (Valuation Conditions) or “home inspector deemed qualified.”

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Safety During Site Inspections:

Note general site conditions Note materials clearly labeled Do NOT handle materials Maintain safe distance from materials Stay out of unventilated, confined spaces Leave final determinations on materials to experts Report concerns to your SEC

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TakeawayElevate hazmat issues to the RD National

OfficeInvolve OGC early in the processDo NOT get personally involved in

environmental compliance, investigation or cleanup decisions

Don’t make agreements with buyers without consideration of environmental risks

Key Agency RisksRisk of Direct Liability to RD

When taking a security interest in the property

Risk of the Loan Package Liability of borrowerImpairment of collateral

Liability RisksFederal and state laws impose liability on

owners and operators of contaminated property – even if they did not cause or contribute to the contamination

The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) is the best-known cleanup law affecting loan-making and servicing

CERCLA LiabilityCosts can be quite high:

InvestigationCleanupOperations and maintenanceLand Use ControlsNatural resource damagesDefense costs

II. Risk of the Loan Package

If borrower faces significant compliance or cleanup costs, its ability to repay the loan may be at risk

Similarly, environmental contamination affecting the collateral creates a material financial risk in the event that the borrower is unable to repay the loan

Minimizing Financial Risk Associated with Hazmat Issues

Why due diligence is important:Crucial informational and decision-making toolLegal benefits in certain instances

Timing of due diligence:Prior to any decision on a loan or guaranteePrior to any decision to foreclose

Minimizing Financial Risk

RD AN No. 4617 refers to two types of environmental due diligence:Transaction Screen (ASTM E 1528-06)Phase I ESA (ASTM E 1527-05)

Other more extensive due diligence efforts may be warranted in particular circumstances (e.g., non-scope issues, Phase II sampling)

Agency GuidanceAgency Guidance AN 4621 (1940-G) Environmental Due Diligence, February 9, 2012

AN 4673 (4279-A, 4279-B, 4279-C, 4280-B, and 4287-B) Business and Industry Guaranteed Loan, Biorefinery Assistance, and Rural Energy for America Programs Transaction Screen Questionnaire and Phase I Environmental Site Assessments

AN 4673

Rural Business-Cooperative Service, considers the use of the: (1) initial investigation using the Transaction Screen Questionnaire (TSQ); and (2) environmental professional evaluation using the Phase I Environmental Site Assessment (ESA) sufficient to conduct environmental due diligence. The TSQ and Phase I ESA standards are published by ASTM International (formerly American Society for Testing and Materials).

Transaction Screen Questionnaire Transaction Screen Questionnaire (TSQ)(TSQ)

ASTM E-1528-14 “Standard Practice for Environmental Site Assessments: Transaction Screen Questionnaire”

Preparation of TSQ by Agency OnlyShould be done for those projects where there

is low probability of previous environmental contamination

If TSQ concludes a Phase I ESA is not needed, provides documentation but does not meet the “all appropriate inquiries” established by EPA for CERCLA lender liability exclusion

Concerns During Site Inspections:

Distressed Vegetation Stained soils & UST fill pipes Drums and other containers Leaking containers Odors Current & past land use Transformers, abandoned vehicles & machinery

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Environmental Site Environmental Site Assessment (ESA)Assessment (ESA)

TSQ Issues: Proceed to Phase I Environmental Site Assessment (ESA, not to be confused with Agency EA)

Preparation by professional environmental consultants

Funding of contract from Program Loan Cost Expenses for REO Property

ESA’s vs. EA’sESA’s vs. EA’sEnvironmental Site Assessment (ESA)

Is the property “clean” or “dirty”?Comprehensive Environmental Response and

Liability Act (CERCLA)Environmental Assessments (EA)

Primary purpose is to determine whether or not a proposed action could have significant environmental impacts that would require an Environmental Impact Statement be prepared

National Environmental Policy Act (NEPA)

RequirementsRequirements

When is a Phase I ESA Necessary?- When RD is taking a security interest in the property (direct loan, foreclosure, title transfer)

When contamination is suspected to be on the property

When banks require onePart of NEPA review? Yes, discuss and disclose findings and conclusions

RequirementsRequirementsWho does a Phase I ESA?

Environmental Professionals – possess training and experience to conduct site visit and interview then develop conclusions regarding recognized environmental conditions Registered Engineers

Registered Geologists

Registered Environmental AssessorsHow to do Phase I ESA?

ASTM E-1527-13

ESA’s

Complete TSQ

PossibleContamination?

Perform Phase IESA

Perform Phase II ESAOr Site

Characterization

ConfirmedOr Suspected

Contamination?Decision Time!

IsContamination

Extensive?

NoSTOP!

Proceed with loan

STOP!No

Yes

Proceed with loan

Yes

No

If there is contamination, remediationmeasures may need to be discussed prior to proceeding with the loan

Yes

Yes

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Due Diligence ResourcesEPA: “Enviromapper”http://www.epa.gov/enviro/html/em/index.html HUD: Environmental Maps “E-Maps”http://egis.hud.gov/egis/ then click on “Map

My Community”

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Methamphetamine Labs

Guidance provided in AN 4718 (1940-G) “Safety In and Around Illegal Methamphetamine Laboratories and Associated Environmental Cleanup”, May, 2013.

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“Safety First”RD employees are not trained as “first

responders” in a meth lab situation. This is a major personal safety issue. If you encounter a lab, leave the property and contact your local environmental protection or law enforcement agency.

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Production of Methamphetamine

Relatively easy to produce.Highly addictive central nervous system

stimulant.Meth “cooks” prefer rural areas to avoid

discovery.

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Signs of a Potential ProblemLoan payments are not being made.

(Occupant may be in jail!).Find “Police Line Do Not Cross” tape

when approaching a structure.Chemical odors or lots of garbage,

empty containers on the property.

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What Does a Lab Look Like?

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AN 4718

If the Agency owns the property, we either have to 1) clean it up and sell it 2) disclose it is contaminated, or potentially contaminated, and sell it as is or 3) demolish it and call it a loss. 

Underground Storage Tanks (USTs)

Any tank that has at least 10 percent of Any tank that has at least 10 percent of its volume undergroundits volume underground

Includes the tank, underground piping, Includes the tank, underground piping, all ancillary equipment, and containment all ancillary equipment, and containment systemsystem

40 CFR Part 280 applies to USTs that 40 CFR Part 280 applies to USTs that

store petroleum products or hazardous store petroleum products or hazardous

substancessubstances

Unregulated USTsUnregulated USTsFarm or residential tanks holding 1,100 Farm or residential tanks holding 1,100

gallons or less of motor fuel used for non-gallons or less of motor fuel used for non-commercial purposescommercial purposes

Tanks storing heating oil used on the Tanks storing heating oil used on the premises where it is storedpremises where it is stored

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Unregulated USTsUnregulated USTsNot required, but consideration must be

given to closure of USTsIndividual States can make policy to have

abandoned unregulated USTs closedEventually, all USTs will leak

How long depends on subsurface conditions

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What to look for…What to look for…

Soil stainingVent/fill pipesPetroleum odorDistressed

vegetation

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Effects of USTs on RD Programs

Regardless of regulatory status Regardless of regulatory status the concern is whether a leak has the concern is whether a leak has occurredoccurred

• Effect on health and safety Effect on health and safety of applicants, adjacent of applicants, adjacent ownersowners

• Negative effect on Negative effect on property security valueproperty security value

USTs in RD ProgramsIf the UST is regulated:If the UST is regulated:

Verify installation documentation Verify installation documentation

Copy of the permit Copy of the permit

Ensure proper reporting and Ensure proper reporting and monitoringmonitoring

USTs in RD Programs• If not actively regulatedIf not actively regulated

- Determine to either remove or close - Determine to either remove or close in placein place

- Removal usually best course- Removal usually best course• State regulations will govern process for State regulations will govern process for

closure or removalclosure or removal

Emergency SituationsEmergency SituationsReport spills to the National Response Center Report spills to the National Response Center

(NRC)(NRC)NRC is sole federal point of contact for reporting oil, NRC is sole federal point of contact for reporting oil,

chemical, radiological and biological releaseschemical, radiological and biological releasesAvailable 24/7 365 days/year Available 24/7 365 days/year

(800)-424-8802 or (202)-267-2675 (800)-424-8802 or (202)-267-2675

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SummaryDue Diligence should be done before a property

is secured, foreclosed, or transferred (don’t make agreements with buyers)

A TSQ doesn’t satisfy the lender liability exclusion under CERCLA while a Phase I ESA does

A Phase I ESA should be done by qualified environmental professional

NO and OCG should be consulted early whenever there are hazmat issues (need for Phase II, etc.)

Do NOT get personally involved in environmental compliance, investigation or cleanup decisions

Environmental Due DiligenceAN No. 4487

Required in loan making and servicing actions, particularly servicing actions that may lead to foreclosure.

Servicing Actions1. Actions Leading to Foreclosure on Real Estate

Security (for all programs).2. Actions Involving Real Estate Owned (REO)

Properties (after foreclosure).Transaction Screen Questionnaire Form (TSQ)Environmental Site Assessments (Phase I )

(ASTM E 1527)

EnviromapperEnviromapper

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EPA EnviroMapperEPA EnviroMapper

Doing a better jobDoing a better job

……fasterfaster

……more accuratelymore accurately

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EPA EnviroMapperEPA EnviroMapper

RD Environmental Due Diligence:RD Environmental Due Diligence:Superfund (NPL) SitesSuperfund (NPL) SitesBrownfieldsBrownfieldsEnviroFactsEnviroFactsWater QualityWater QualityClean Ups Clean Ups

Environmental JusticeEnvironmental Justice

Please note that NEPAssist also provides another Please note that NEPAssist also provides another platform to access all of the Enviromapper data. platform to access all of the Enviromapper data. Formats are different, however.Formats are different, however.

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http://www.epa.gov/enviro/html/em/index.html42

Facility

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For DemographicsClick here

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Questions??Questions??

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Email or call with any comments or questions on this webinar toJuliet.Bochicchio@wdc.usda.gov or 202-205-8242