Undisclosed underground oil tank!

28 Replies

…and so the fun begins. :-/

I just had a formal inspection done today on what's supposed to be my first rehab, a Fannie Mae REO.Lo & behold, the inspector found evidence of a buried oil tank underneath the deck (the only indication was the short pipe sticking out of the ground).Mind you, there was no mention of one in the listing (which stated gas heat and "n/a" next to "oil tank"), nor anything on the disclosure—so I thought everything was cool.

I went back and told the LA that I wouldn’t be closing unless the bank took care of testing, removal & any remediation.(As the owners, aren’t they responsible for this, especially if they didn’t disclose?They claim they were unaware, but don’t they have people checking these things out?)

Any thoughts, guys?I could try renegotiating w/ the bank & getting the price further down to offset any of my UOT expenses (seems the average is $650-700 for soil testing only, $1200-$1500 to remove & test; of course they also have to rip up the deck to get to it, lol)…but then again, as this is my first rehab, I also don’t want to get in over my head & I’m really thinking of just saying, “Next!” (Luckily I always put “oil tank” as one of the inspection contingencies on my offer!)

Banks/lenders generally do not do any disclosures at all, and likely never will. 

"We don't know nothin'."

I have seen some REO listings where they've been upfront about a buried tank...but I guess one has to definitely do their own due diligence & not assume it doesn't exist simply because it wasn't disclosed!

@Vonetta Booker  

I went though this last year with a property.  I ended up not buying the property.     

Tread carefully is all I can say.  The issue is not that there is an underground tank its if the tank leaks and has residual oil on the property.   I would recommend calling a tank removal company in your area to discuss your options so you know what you are getting into.  

John is correct.

For these sort of oil tanks the best thing to do is to contact someone who specializes in them to see what condition it's in.  They need to make sure the tank will not leak. They are fairly common in some areas. 

When buying REOs DO NOT rely on the seller disclosure.  You usually don't even get one, of get one that says "unknown" for everything.

For that matter, never trust any seller disclosure.  Always do you own due diligence on the property.

Jon Holdman, Flying Phoenix LLC

When there is a tank in the ground, there is usually a fuel line from the tank into the house near the heating system; that us something to look for too. Even when the tank has been disconnected, the line into the house might remain especially when it goes through a foundation wall. 

Your best bet is to try to renegotiate price to take into account what it will cost you to get it removed or filled in. Banks won't do remediation on it for you and they aren't required to give disclosures on REO properties. Or you could always walk away if they won't reduce the price.

Everyone's advice is much appreciated!  @Derek Faller  , I think a price renegotiation is a definite possibility!

An update:  The listing agent came back w/ a counteroffer from the bank: They suggested that I take care of testing, and if anything comes back contaminated, they'll handle remediation. (Not for nothing, I'm wondering in that case why they wouldn't just go ahead and also pay for the testing--which is the easy part!)

Although I'm considering it because it would be a good deal, I'm still a bit wary.  When I called some tank removal companies for rates, I was told that samples taken from alongside the tank would only result in about 75% accuracy.  If that's true, then I wouldn't want to leave anything to chance; I'd want to go the more "accurate" route they suggested & get soil from directly underneath the tank (they'd have to pull it up in this case--along w/ the deck that's positioned over it.)  Since the property would still be in the bank's possession, I'm currently waiting for verification that it would be okay w/ them to rip up the deck.  If they insist on just side soil samples, then I wouldn't feel comfortable w/ just that.

So, that's where we're at right now.  Part of me is like, "Scared money don't make none!" but the other part is like, "Is this really worth it?" LOL.  Does the bank's counteroffer seem a little strange, or is it normal? 

(Thanks for reading through the long-windedness... ;-)

Your fuel tank is leaking. The question is how much will it cost to clean it up. Search around on the internet. You will read about some real horror stories. You have an out with your contingence and you may have to use it.

In 2003 we bought our home in Maryland with a buried fuel tank.  The tank had been in the ground 40 years. We had the tested and the results came back good. In 2004 we had natural gas run to the house so we had the tank removed. Maryland gives you 1 year to remove a decommissioned tank. 

 There were hundreds of small holes in the bottom of the tank. Condensation that collects in the top of the tank drips down through the fuel to the bottom of the tank where it rusts through. We spent $3600.00 to have the tank and 40 tons of contaminated soil removed. I also spent a lot of time and energy getting the lawn reestablished.

  Check with Connecticut's Environmental Protection Agency. There may be laws addressing the removal of buried residential fuel tanks. Possibly you could use that as leverage to make the seller remove the tank and handle the clean up.

 I hope this helps you.

@Thomas Elam --I actually decided to move on from the property. In addition to my update post above, my private lender didn't have a good feeling about the oil tank either, and opted not to get into the deal (which I totally understood).  We both though this could be a bit much, since it would be my first deal.

I had "oil tank" as a specific inspection contingency option, so I'll be getting the EMD back & moving on to the next. Oh, well!

Originally posted by @Vonetta Booker:

Everyone's advice is much appreciated!  @Derek Faller  , I think a price renegotiation is a definite possibility!

An update:  The listing agent came back w/ a counteroffer from the bank: They suggested that I take care of testing, and if anything comes back contaminated, they'll handle remediation. (Not for nothing, I'm wondering in that case why they wouldn't just go ahead and also pay for the testing--which is the easy part!)

Although I'm considering it because it would be a good deal, I'm still a bit wary.  When I called some tank removal companies for rates, I was told that samples taken from alongside the tank would only result in about 75% accuracy.  If that's true, then I wouldn't want to leave anything to chance; I'd want to go the more "accurate" route they suggested & get soil from directly underneath the tank (they'd have to pull it up in this case--along w/ the deck that's positioned over it.)  Since the property would still be in the bank's possession, I'm currently waiting for verification that it would be okay w/ them to rip up the deck.  If they insist on just side soil samples, then I wouldn't feel comfortable w/ just that.

So, that's where we're at right now.  Part of me is like, "Scared money don't make none!" but the other part is like, "Is this really worth it?" LOL.  Does the bank's counteroffer seem a little strange, or is it normal? 

(Thanks for reading through the long-windedness... ;-)

Does Fannie Mae REO mean it's a HUD home? What's the difference between Fannie and Freddie? I like 75% odds, but that's just me. If you can't be happy with the 75%, I would just walk away. No property is worth losing sleep over.

From what I understand, Fannie Mae & Freddie Mac actually both have the same business model; the difference between the two is that the former primarily buys bank-issued mortgages--and the latter buys mortgages issued by thrifts (banks that often have access to low-cost funding from Federal Home Loan Banks, allowing for higher savings account yields to customers and increased liquidity for mortgage loans.)  

Something interesting I noticed on the MLS just now: After I declined, it went back on market w/ the price reduced to my $135k offer (previously it was $155k).

I guess that kicked off the typical "price drop swarm," because 3 days later it was pending once again.  

Hmmm, I wonder if they know about the oil tank??? (I wouldn't be surprised if the bank still "forgot" to mention it.) Oh, well...good luck to whoever's buying it...seems like they'll need it!

If the seller is made aware of  a material fact they must disclose. Sometimes these banks say they do not want the inspection so the asset manager can try and deny they know to the next buyer (ahem sucker ).

Really taking the tank out isn't the expense as much as how much soil has been disturbed.

In commercial sometimes commercial properties will be contaminated. Some states have remediation programs where if you get the letter to be on the approved list they will fix the issue paid out of that fund.     

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 | http://www.AWcommercial.com | Podcast Guest on Show #47

As a matter of fact, in the listing next to "Oil Tank" it still reads, "Not applicable" and there's still no mention of it in the listing. Doesn't say anything about no inspections.  

I reached out to the listing agent, pointed this out & asked if the bank was disclosing the oil tank to future buyers since they're now aware of it. (Haven't gotten a reply yet.)

The Maryland Department of the Environment regulates buried fuel tanks, Connecticut may have a similar government agency.  You may want to report the tank to them to find out about your local laws.

Just thinking here.

Theres always a paper trail somewhere. If the REO bank was the one who foreclosed on the property and took possession then the previous ownere would have had a mortgage packet the lender would have approved. Also a title company would have been involved with gathering all disclosures. Woudln't someone be able to obtain this packet from the REO bank or Title company?

I'm not even sure if this is possible or what this would help with, if anything.

just my .02.

Good luck! 

An REO could currently be on fire and the bank probably wouldn't disclose that. I've never seen them disclose anything. They may not want to negotiate with you in the hopes of holding out for an investor buyer who won't do an inspection.

I just noticed this is your first rehab. Unless underground storage tanks are common in your area, I would move on. I think this could have expensive unknown issues and is not a good house for a first rehabber.

There have been some REOs I have walked away from due to major inspection issues. They never changed the disclosures. The next buyer would first have to suspect that the bank knew of the issues, and then have to prove it.  And now they are changing the standard contract in are area, saying if the property is as-is that the buyer agrees to NOT send the inspection report, unless the seller asks for it.

i just took one out 2500, no contamination, he's taken out over 200 and had 5 contaminated.

Don't be scared ,negotiate price and go for it!!!  Just FYI 10k was price if land was contaminated..If your using bank financing they will want it out ,and INS company will want it removed before they give u a policy 

Thanks for everyone's feedback (I'm like wow, it reached 2 pages, lol! ;-).  @Kimberly H.  , I totally hear what you're saying--I did decide to move on (plus my lender didn't feel comfortable going in on the deal either based on the oil tank & it possibly being much since it's my first deal).   IMO, sometimes the best deals are the ones you walk away from!

While the bank might still not disclose, I would have thought that it is now also a responsibility of the seller's agent to do so?

Anyway, regarding that tank, given that it is located so close to the house (under the deck), if it leaked then it is very possible that the the contamination extends underneath the foundation of the property.  In that case, it is essentially impossible to remediate without tearing down the house.  You may still get an OK from the State evironmental office but you will have conditions of "non-disturbance" attached to the affected area.  I was dealing with such a case and had I moved ahead with the purchase, I would have been forbidden to put a sorely needed French drain (or anything else that disturbed the area within 15 feed on each side of the affected location).  These restrictions attach to the deed in NC, so you are stuck with them for good.  In addition, you are still on the hook if the contamination spreads into the ground water or onto your neighbor's property down the road.

@Christopher Moran  

 - good for you that you were able to remediate cheaply.  However, my guess is that the fact your guy has only seen 5 in 200 leak probably has more to do with how hard he looked, and not what the actual incidence rate of leaking tanks is.  Certainly, in our neck of the woods (we have acidic soil), almost every tank will be completely corroded after 30 or 40 years.  The only way it won't leak is if it was pumped completely dry when it was decommissioned.  I'm guessing that is by far the minority of cases.

The view from inside our buried fuel tank looking out. You can see the sun shining through the holes. 

The fuel tank rolled on it's side and contaminated soil in the background. We have clay soil, the back hoe dug down 14 feet before the soil did not smell like fuel. The fuel stained the outside of the tank to about 1/2 way up the side of the tank so it appears to have sat in a fuel pool for awhile.

 We had the tank tested prior to buying this house and it passed. These photos were taken 18 months after we purchased the house. I spoke to the man who tested the tank. He told me the tank barely passed the leak test.  I guess that is like barely being pregnant? He did not have a reply to that. The seller paid for the test, a lawyer told me there is no way to prove when the tank started to leak.

 The tank was buried 20' from our well. There are a number of buried tanks in our development. I have seen another neighbor go through the same thing we did. It is hard to miss the smell of fuel oil coming from a big pile of dirt.  With so many tanks buried around us I think it is impossible to say exactly which tank would be the one that contaminated the ground water.

 One ex neighbor who is a Real Estate Agent asked me why we had a mound of dirt in our yard. I explained it to her. She had her house up for sale at that time. Her house has a buried fuel tank also. I told her that I would not buy another house with a tank buried in the yard. I told her that she has a leaking tank.  She just looked at me with a blank stare. She sold her house leaking tank and all.

 I agree that it is the real estate agent's responsibility to make it known that there is a buried tank on the property. They know about it and they write the listing. If they are withholding information then they should be held accountable.