Pledging cash in lieu of a phase 2 Environmental clean up

[John Flemming]

I am a commercial lender for a client here in Chicago. He is currently negotiating to buy a 15 acre parcel where he is currently renting. He is a tenant in the property. The property has been a truck terminal for years and he knows it’s “contaminated”. We obtained a phase 2, which indicated significant amounts of clean up, estimate cost is around $200k. He doesn’t wish to clean it up. He has offered to pledge $300k in cash until the loan is paid off, in lieu of performing the clean up work. He said the loan will be paid off in 5-7 years of the approved 15 year term.

The borrower is very liquid and could pledge his home if needed. That would lower the LTV to under 50%. My question is with the examiners. How will they handle this? Will they require us to perform the work, even tho we have enough lendable equity in the land?

Thanks for your input.