Environmental Due Diligence Meth Labs

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Environmental Due Diligence Meth Labs
Underground Storage Tanks
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Environmental 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.

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Why do Environmental Due 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

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• 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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Takeaway

• Elevate hazmat issues to the RD National Office
• Involve OGC early in the process
• Do NOT get personally involved in environmental
  compliance, investigation or cleanup decisions
• Dont make agreements with buyers without
  consideration of environmental risks

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Key Agency Risks

• Risk of Direct Liability to RD
• When taking a security interest in the property
• Risk of the Loan Package
• Liability of borrower
• Impairment of collateral

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Liability Risks

• Federal 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

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CERCLA Liability

• Costs can be quite high
• Investigation
• Cleanup
• Operations and maintenance
• Land Use Controls
• Natural resource damages
• Defense costs

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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

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Minimizing Financial Risk Associated with Hazmat
Issues

• Why due diligence is important
• Crucial informational and decision-making tool
• Legal benefits in certain instances
• Timing of due diligence
• Prior to any decision on a loan or guarantee
• Prior to any decision to foreclose

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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)

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• Agency 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

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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).

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• Transaction Screen Questionnaire (TSQ)
• ASTM E-1528-14 Standard Practice for
  Environmental Site Assessments Transaction
  Screen Questionnaire
• Preparation of TSQ by Agency Only
• Should 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

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• 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 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

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ESAs vs. EAs

• Environmental 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)

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Requirements

• 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 one
• Part of NEPA review?
• Yes, discuss and disclose findings and conclusions

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Requirements

• Who 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 Assessors
• How to do Phase I ESA?
• ASTM E-1527-13

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ESAs
Confirmed Or Suspected Contamination?
Complete TSQ
No
Decision Time!
STOP!
Proceed with loan
Yes
Possible Contamination?
Perform Phase II ESA Or Site Characterization
No
STOP!
Proceed with loan
Yes
Yes
If there is contamination, remediation measures
may need to be discussed prior to proceeding
with the loan
Is Contamination Extensive?
Perform Phase I ESA
No
Yes
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• Due Diligence Resources
• EPA 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 Problem

• Loan 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. 
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Underground Storage Tanks (USTs)

• Any tank that has at least 10 percent of its
  volume underground
• Includes the tank, underground piping, all
  ancillary equipment, and containment system
• 40 CFR Part 280 applies to USTs that store
  petroleum products or hazardous substances

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Unregulated USTs

• Farm or residential tanks holding 1,100 gallons
  or less of motor fuel used for non-commercial
  purposes
• Tanks storing heating oil used on the premises
  where it is stored

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Unregulated USTs

• Not required, but consideration must be given to
  closure of USTs
• Individual States can make policy to have
  abandoned unregulated USTs closed
• Eventually, all USTs will leak
• How long depends on subsurface conditions

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What to look for

• Soil staining
• Vent/fill pipes
• Petroleum odor
• Distressed vegetation

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Effects of USTs on RD Programs

• Regardless of regulatory status the concern is
  whether a leak has occurred
• Effect on health and safety of applicants,
  adjacent owners
• Negative effect on property security value

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USTs in RD Programs

• If the UST is regulated
• Verify installation documentation
• Copy of the permit
• Ensure proper reporting and monitoring

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USTs in RD Programs

• If not actively regulated
• - Determine to either remove or close in place
• - Removal usually best course
• State regulations will govern process for closure
  or removal

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Emergency Situations

• Report spills to the National Response Center
  (NRC)
• NRC is sole federal point of contact for
  reporting oil, chemical, radiological and
  biological releases
• Available 24/7 365 days/year
• (800)-424-8802 or (202)-267-2675

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Summary

• Due Diligence should be done before a property is
  secured, foreclosed, or transferred (dont make
  agreements with buyers)
• A TSQ doesnt 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

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Environmental Due DiligenceAN No. 4487

• Required in loan making and servicing actions,
  particularly servicing actions that may lead to
  foreclosure.
• Servicing Actions
• Actions Leading to Foreclosure on Real Estate
  Security (for all programs).
• Actions Involving Real Estate Owned (REO)
  Properties (after foreclosure).
• Transaction Screen Questionnaire Form (TSQ)
• Environmental Site Assessments (Phase I )(ASTM E
  1527)

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Enviromapper
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• EPA EnviroMapper
• Doing a better job
• faster
• more accurately

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• EPA EnviroMapper
• RD Environmental Due Diligence
• Superfund (NPL) Sites
• Brownfields
• EnviroFacts
• Water Quality
• Clean Ups
• Environmental Justice
• Please note that NEPAssist also provides another
  platform to access all of the Enviromapper data.
  Formats are different, however.

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http//www.epa.gov/enviro/html/em/index.html
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Facility
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For Demographics Click here
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Questions??
Email or call with any comments or questions on
this webinar to Juliet.Bochicchio_at_wdc.usda.gov or
202-205-8242
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