Environmental Due Diligence & Risk Management

FROM EDR INSIDER June 2010:

Foreclosure Leads Bank to Sue Dry Cleaner
An Illinois-based lender filed an environmental lawsuit after foreclosing on a seemingly benign property that was later found to be contaminated. In 2009, the bank foreclosed on a two-family home. Since then, the bank discovered that a nearby dry cleaner had allegedly contaminated the property, along with the surrounding area. As a result, the bank is now suing the dry cleaning company, its owner and its lender. The plaintiff is seeking $10,800 for environmental testing and an additional $300,000 for nuisance, negligence and trespassing.

The residence is located on a block targeted for purchase and redevelopment by the city. According to local reports, the PCE plume allegedly caused by the dry cleaner is delaying this project. The bank has tried for months to resell the foreclosed home unsuccessfully, and claims that the presence of contamination has stigmatized the site and ruined its marketability, even given the proposed redevelopment for the area. With the projected coming wave of foreclosures by banks on both residential and commercial properties, this story demonstrates the importance of conducting environmental due diligence upfront. Even properties that are not associated with high-risk operations and are in high-demand neighborhoods can have associated environmental issues that need to be addressed prior to property resale.