Several years into a difficult economic climate, as commercial borrowers continue to default on loans secured by real property, a growing number of lenders face the prospect of employing the remedy of foreclosure. While financial institutions that make loans secured by commercial real estate are generally aware of the risks posed by foreclosing on real property that could or does in fact contain a hazardous substance covered by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA),1 even sophisticated parties can place undue reliance on the protection of the statute’s safe harbor for secured creditors or personal indemnities from borrower principals. While in certain circumstances the safe harbor protects foreclosing lenders from CERCLA liability, the scope of that protection is limited and, in many places, poorly defined. Even recent developments in CERCLA jurisprudence do not reveal a comprehensive or consistent body of law that lenders can rely on with more confidence than caution.
CERCLA, popularly called “Superfund,” empowers the U.S. Environmental Protection Agency (the EPA) to compel the remediation of released hazardous substances by current “owners and operators” of the sites of such releases (referred to under the statute as “potentially responsible parties” (PRPs)). CERCLA imposes both strict liability and joint and several liability on PRPs. A lender who is deemed a PRP through its foreclosure on real estate collateral could therefore become fully liable for environmental conditions that the lender did not cause, the cost of which greatly exceeds the value of the bank’s investment in the property and may predate by years the date on which the lender acquired the property.
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