Bank wants Environmental Form filled but Seller refuses to!

Real Estate Investor · Bay Area, CA · Member since 2016 · 37 posts · 13 votes

I'm looking at a multi-family property and one of the closing conditions for the bank to approve the loan is an environmental form that they want the seller to fill out.

The seller says that he would open himself to liability if he filled the form out and hence doesn't want to fill it out.

The seller and his agent are very difficult to deal with (rude, abrupt, and generally uncooperative) and the only reason I'm pursuing it is because the numbers look good and it's a strong property.

The bank says the only alternative to the form being filled out is to have an expensive Phase I environmental assessment done.

Are there any other alternatives to this? What are some solutions to move forward?

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Stephanie P.Pro Member

Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes

Originally posted by @Vasundhara Ranjani:

I'm looking at a multi-family property and one of the closing conditions for the bank to approve the loan is an environmental form that they want the seller to fill out.

The seller says that he would open himself to liability if he filled the form out and hence doesn't want to fill it out.

The seller and his agent are very difficult to deal with (rude, abrupt, and generally uncooperative) and the only reason I'm pursuing it is because the numbers look good and it's a strong property.

The bank says the only alternative to the form being filled out is to have an expensive Phase I environmental assessment done.

Are there any other alternatives to this? What are some solutions to move forward?

Walk away.

In order for the lender to obtain the necessary capital to fund that loan, it has to pass an initial environmental survey. If there are underground tanks or other potential environmental hazards, it gets passed onto an environmental hazard insurance company and they either insure it or they don't. If they don't fund it on the initial pass, they may suggest a Phase I and eventually a Phase II, but without the initial survey, they will not do the loan. Could be the sellers are hiding something and could be they are just hard headed. I don't know. I do know that without the survey the loan is dead. I also know that for many of the lenders we use, if the survey comes back with ANY environmental concerns, the loan is dead. That means if you do end up buying the property somehow without the environmental survey and then down the road you want to sell it, you will be on the hook for the previous seller's environmental concerns.

Best of luck

Stephanie

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Kim Meredith HamptonBusiness Member
Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes
8y
I would go ahead and have the Phase 1 completed, maybe there is something that he is hiding??
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Stephanie P.Pro Member
Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
8y
Originally posted by @Vasundhara Ranjani:

I'm looking at a multi-family property and one of the closing conditions for the bank to approve the loan is an environmental form that they want the seller to fill out.
The seller says that he would open himself to liability if he filled the form out and hence doesn't want to fill it out.
The seller and his agent are very difficult to deal with (rude, abrupt, and generally uncooperative) and the only reason I'm pursuing it is because the numbers look good and it's a strong property.
The bank says the only alternative to the form being filled out is to have an expensive Phase I environmental assessment done.
Are there any other alternatives to this? What are some solutions to move forward?
Walk away.
In order for the lender to obtain the necessary capital to fund that loan, it has to pass an initial environmental survey. If there are underground tanks or other potential environmental hazards, it gets passed onto an environmental hazard insurance company and they either insure it or they don't. If they don't fund it on the initial pass, they may suggest a Phase I and eventually a Phase II, but without the initial survey, they will not do the loan. Could be the sellers are hiding something and could be they are just hard headed. I don't know. I do know that without the survey the loan is dead. I also know that for many of the lenders we use, if the survey comes back with ANY environmental concerns, the loan is dead. That means if you do end up buying the property somehow without the environmental survey and then down the road you want to sell it, you will be on the hook for the previous seller's environmental concerns.
Best of luck
Stephanie
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Vasundhara Ranjani
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Real Estate Investor · Bay Area, CA · Member since 2016 · 37 posts · 13 votes
8y
@Kim Meredith Hampton that's what I thought too. However the Phase I is about $2500 - I suppose I should eat the cost for peace of mind now instead of scrimping now and regretting it later.
@Stephanie P. that's a good point. I too thought about whether he's hiding something but I spoke to the current property manager and he says it's always been a MF property so the chance of underground tanks or soil contamination is quite low, isn't it?
This is a tough decision since the numbers make sense; perhaps I'll just go ahead with the Phase I that way all bases are covered and in the worst case, there'll be a loss of $2500 if I walk away after the Phase I is done.
Thanks for both your answers.
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Kim Meredith HamptonBusiness Member
Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes
8y
You could also ask since he does not want to pay for the Phasr 1, would he be willing to adjust the price by $2500
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
you should do a phase one as a matter of course on any property you buy that is of significant value. its just smart and good insurance to make sure you don't have any environmental hazards.. just cost of doing business.
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Todd Dexheimer
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
8y
Order the Phase 1 report. This should be done in all cases anyway.
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John Patterson
Contractor · Canton, GA · Member since 2015 · 111 posts · 81 votes
8y
if it’s multi family and earlier than 1978, they are probably wanting to verify mold, lead and asbestos. The EPA has been getting tight about that , I’ve never heard of a lender requesting it before.
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