Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, July 6, 1990 TAG: 9007060177
SECTION: NATIONAL/INTERNATIONAL PAGE: A1 EDITION: METRO
SOURCE: The Washington Post
DATELINE: WASHINGTON LENGTH: Medium
But what seemed at first like a relatively simple transaction turned into a painful precedent for both the banking industry and for would-be borrowers.
Maryland Bank and Trust ended up with the farm after an auction failed to produce someone willing to pay the minimum bid. In the meantime, the farm's former owner had alerted authorities to potential environmental hazards on the property.
The Environmental Protection Agency soon discovered hazardous waste on the site - possibly the residue of paint cans and chemical drums disposed of there more than 20 years ago. Despite the bank's assertion that it had been unaware of the waste and should not be held responsible for it, EPA sent the bank a bill for approximately $500,000, according to William Loker, assistant to the president of the bank.
When the bank declined to pay, the EPA sued and won a judgment in U.S. District Court that the bank was liable for the cleanup. Rather than fight on, the Maryland Bank and Trust settled, agreeing to pay more than $400,000.
In retrospect, Loker said, the bank should have appealed instead of allowing the 1986 lower court ruling to stand. "We apparently made some law, and, in the opinion of many, bad law," he said.
As a result of a series of judicial rulings that began with the Maryland Bank and Trust case, banks and savings and loans across the country are increasingly getting stuck with the costs of toxic waste cleanups on properties on which they foreclose.
To help pay for the unexpected liabilities, banks are charging would-be borrowers stiff fees for environmental audits or are refusing to make loans to properties that pose a high risk of being declared in need of cleanup. These stiffer lending practices are making it that much tougher for some businesses to get loans at a time when borrowers already face a tightened market for credit.
Members of Congress say that when they imposed the 1980 Superfund law to finance toxic waste cleanup, they never intended that financial institutions be held responsible for hazardous waste on properties acquired temporarily through foreclosure. When it drafted the Superfund legislation, Congress exempted security holders - lenders who end up with title to property used as security on loans - from Superfund liability, said Rep. John LaFalce, D-N.Y.
EPA Administrator William Reilly said his agency also had not intended for the banks "to get stuck with the costs, and we haven't adequately addressed this." He said that EPA officials are working with the Justice Department to try to resolve the issue.
More recent court decisions have broadened lenders' liability and prompted LaFalce and Sen. Jake Garn, R-Utah, to introduce bills that would provide an exemption from liability for lenders who inherit rather than create contamination.
by CNB