Superfund and the Impact on the Banking Industry
Keizer, Todd M.
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The 1980 Environmental Protection Agency's Superfund legislation, the Conprehensive Environmental Response, Comrpensation, and Liability Act (CERCLA), specifically with its 1986 revision, the Superfund Amendment Reauthorization Act (SARA), has given the · Environmental Protection Agency the authority to make a large impact on the nation's attempts to rid itself of toxic pollutants, but has also changed the face of commercial bank lending and investment. Due to this Superfund legislation, the present owners of property are expected to either clean up the contamination found on their property or aide in finding out who is really responsible. It has become the job of the Environmental Protection Agency to step in and determine what clean-up is performed and who pays for the clean-up, using the Superfund monies and the legal leverage provided by the statute as a means of doing so. This involves out-of-court negotiations and long, drawn out, court proceedings. The hesitation which some lending and investment firms display in today's market is due in large part to the hidden costs of becoming involved in a transaction where the property in question is contaminated. If a bank writes the mortgage on a piece of contaminated property or accepts that property as collateral for a loan, and the new owner defaults, the bank may be left with a bill for some very expensive clean up costs. This may be due to statutory requirements or to salvage its mortgage investment. In either case, the bank could face losses in the millions of dollars. This type of risk has forced the banks to develop an extensive preliminary process to almost any loan that they become involved with. This has caused the time and money put into the loan by the consumer to escalate to often times exceedingly large amounts.