A lender who has made a loan on property that is subject to potential environmental liability faces multiple risks. For example, if the property owner is forced to pay for cleanup costs, he may not have enough money left over to pay off the debt. Once environmental contamination is discovered on the property, its market value may fall below the original appraised value. Serious contamination may render the property totally unmarketable, making the lender’s security interest worthless. While the above risks are significant, lenders face an even more threatening risk when foreclosure is necessary – the risk of liability for remediation costs. Sometimes these costs can amount to many times the actual value of the secured debt.
Current environmental laws may require the lender to pay for environmental remediation of contaminated property even when they have no direct role in causing the contamination. There are practical headaches like signing manifests to dispose of chemicals and concerns about environmental liability as an owner or operator, but if a receiver conducts the remediation, the lender can avoid these problems. Because the receiver has quasi-judicial immunity, he or she is not liable for acts taken which are specifically directed by the court.