Environmental Due Diligence Meth Labs & Underground Storage Tanks

1. Environmental Due Diligence Meth Labs &Underground Storage Tanks

2. 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.

3. 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

4. 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.” 5

5. 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 . 4

6. 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 • Don’t make agreements with buyers without consideration of environmental risks

7. 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

8. 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

9. CERCLA Liability • Costs can be quite high: • Investigation • Cleanup • Operations and maintenance • Land Use Controls • Natural resource damages • Defense costs

10. 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

11. 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

12. 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)

13. 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

14. 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).

15. 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

16. 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 6

17. 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

18. ESA’s vs. EA’s • 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)

19. 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

20. 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

21. ESA’s 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 9

22. 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” 11

23. Methamphetamine Labs • Guidance provided in AN 4718 (1940-G) “Safety In and Around Illegal Methamphetamine Laboratories and Associated Environmental Cleanup”, May, 2013. 13

24. “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. 14

25. Production of Methamphetamine • Relatively easy to produce. • Highly addictive central nervous system stimulant. • Meth “cooks” prefer rural areas to avoid discovery. 15

26. 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. 16

27. What Does a Lab Look Like? 17

28. 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. 

29. 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

30. 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 21

31. 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 22

32. What to look for… • Soil staining • Vent/fill pipes • Petroleum odor • Distressed vegetation 23

33. 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

34. USTs in RD Programs • If the UST is regulated: • Verify installation documentation • Copy of the permit • Ensure proper reporting and monitoring

35. 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

36. 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 26

37. Summary • Due Diligence should be done before a property is secured, foreclosed, or transferred (don’t make agreements with buyers) • A TSQ doesn’t 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

38. 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)

39. Enviromapper 39

40. EPA EnviroMapper Doing a better job …faster …more accurately 40

41. 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. 41

42. http://www.epa.gov/enviro/html/em/index.html 42

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47. For Demographics Click here 47

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50. Questions?? Email or call with any comments or questions on this webinar to Juliet.Bochicchio@wdc.usda.gov or 202-205-8242 50