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Newsletter #2: Your Industry Environmental Update

The Small Business Administration (SBA) issued their latest guidance criteria on March 1, 2013 with Standard Operating Procedure (SOP) 50 57.  Specifically this SOP applies to Section 7(a) Loan Servicing and Liquidation.  SOP 50 57 outlines the expanded risks associated for secured creditors with contaminated collateral.  In response to this SOP lenders are requiring more pre-loan and post-default environmental investigations to minimize risks from institutional liability.   Additionally any property to serve as collateral that has ever had a gasoline service station or dry cleaning business must receive additional scrutiny to qualify for meeting the liability protections as outlined in the SOP.  The SBA’s environmental policies have been adopted by many financial institutions for their internal organizational policy standard.  As federal regulatory pressures have increased and with the growing amount  of liable responsible parties there have been enforcement actions against over 1,300 banks in the last few years.

The revised ASTM Phase I Environmental Site Assessment standard (E-1527-13) will soon be universally accepted within the industry.   One of the key changes over the ASTM 2005 standard version is the expanded definition and clarification of Recognized Environmental Conditions (REC).   A REC in the summary or conclusion of a due diligence report refers to the presence or likely presence of any hazardous substance or petroleum products in, on, or at the subject property under conditions indicative of a past release, present release, or posing a material threat of a future release to the environment.   The new standard has introduced the “Historical REC” and the “Controlled REC”.  A Historical REC refers to a past release that has been addressed to the satisfaction of the applicable regulatory authority or that meets unrestricted residential use criteria.   The Controlled REC refers to a past release that has been addressed to the satisfaction of the applicable regulatory authority with hazardous substances or petroleum products allowed to remain in place subject to required controls such as activity or use restrictions, institutional limitations, or engineering controls.   Read more here …