Removal of Underground Oil VS Legal Decommission of Tank

20 Replies

Hi BP, 

I'm a new investor looking to close on my first house hack in North Jersey! I was able to find an awesome property and get my offer accepted. I'll be able to house hack and reduce my living expenses significantly, allowing me to save up more for my next deal. After I move out, the property will cash flow based on my estimates. I'm currently in attorney review and the only caveat is that there is an underground oil tank. 

 The seller is refusing to remove the tank, and will only pay to have it legally decommissioned in place. For those of you with more experience or have run into a scenario like this - would you move forward with the deal knowing that the seller will not remove the oil tank and will look to legally decommission it? Or would you pass on this opportunity?

 I'm interested in learning about the pros and cons of accepting the sellers terms and getting is legally decommissioned or walking away from the deal if the risk of buying the property with the underground oil tank is too great. 

Thanks! 

What was stored in the tank? What are the prior uses of the property past 100 years?  Have you tested it? Can it be filled with sand? Environmental issues?

Originally posted by @Daljit Singh :

Hi BP, 

I'm a new investor looking to close on my first house hack in North Jersey! I was able to find an awesome property and get my offer accepted. I'll be able to house hack and reduce my living expenses significantly, allowing me to save up more for my next deal. After I move out, the property will cash flow based on my estimates. I'm currently in attorney review and the only caveat is that there is an underground oil tank. 

 The seller is refusing to remove the tank, and will only pay to have it legally decommissioned in place. For those of you with more experience or have run into a scenario like this - would you move forward with the deal knowing that the seller will not remove the oil tank and will look to legally decommission it? Or would you pass on this opportunity?

 I'm interested in learning about the pros and cons of accepting the sellers terms and getting is legally decommissioned or walking away from the deal if the risk of buying the property with the underground oil tank is too great. 

Thanks! 

Congrats of finding a good deal.  It’s tough to do these days.  Did you discuss the tank with your attorney?  He should have more experience than anyone with seeing deals with underground tanks.   I’d also recommend calling your property insurer to see if they will insure it with a decommissioned tank that hasn’t been removed.    https://www.cranfordnj.org/bui... 
this site says most insurers will not insure a property with an unground tank.

Also, you need to make sure your mortgage company will lend on a property with an underground tank.  Most will not.  

It’s a huge liability risk for you, the insurer, your lender, if there is an underground tank because it could have previously leaked (need soil tests) and could cost 100k plus to fix and  you as the new owner would be responsible for if the tank had leaked or does in the future. Without an EPA certification that soil has been remediate, you can’t get a CO and can’t rent it out.  

If you (1) get a certification that the tank is decommissioned, there has been no oil leak and there is no possibility of a future leak, and (2) your insurer will insurer it, (3) your mortgage co will lend on it, and (4) your township will issue a CO, then I’d possibly move forward.  However, removal with certification of no prior leaks seems like best option. You’ll need to negotiate with the seller who will pay for it. It’s sellers obligation but if it’s a great deal maybe you pay for it for them.

Note in NJ, heating oil tanks below 2,000 gallons are unregulated though landowner can still be liable for cleanup.

Sometimes closure in place is appropriate where excavation could undermine building. Closure in place usually means draining tank, cleaning it and filling it with inert material. However, the concern should be if the tank has impacted soil and groundwater. are they proposing sampling in connection with the decommissioning? If not, this should be done to determine if cleanup is required. If so, then you may want to have a consultant estimate reasonable worst case scenario to determine costs and see if you can get a credit. does home have on-site drinking well or is it served by city water? 

In addition, NJ has licensed professional for home heating oil tanks. any decommissioning should be done by a licensed professional. NJDEP has a website about home heating at https://www.nj.gov/dep/srp/unregulatedtanks 

You can ask whatever you want. Seller can refuse to do anything. If no leaking or still in service, no problem. Or find a new deal. 

You can not buy with a decommissioned tank in NJ. Never. Ever. Only if you are experienced and have done soil testing and then there is still a risk. The old decommissioning procedure was to clean out the oil and fill the tank with sand and leave it in place. However, many were not decommissioned correctly and sand was poured on top of the existing oil which presses the oil out the bottom over time. The only acceptable remedy for a new investor or buyer in NJ is to have the seller pull the tank and do any remediation necessary. It is an absolute no go if they do not.

Hi @Daljit Singh . I had a home under contract in Hudson county two years ago, and in the inspection an oil tank was found.  The home inspector's report in big, bold, red lettering said "DO NOT BUY THIS HOME WITH THE OIL TANK."  Under no circumstance would I have purchased the home without the buyer having it removed, and having the soil tested to make sure there wasn't a leak.  The purchase ended up taking six months from offer acceptance to closing, mostly due to the complications of the tank. 

Everyone has their own risk tolerance.  For my first house hack, I was not willing to take on a home with a known oil tank that could have lead to unknown issues down the line.  The way I looked at it was: either the seller would fix the problem and I'd end up with the property, or I would have learned a lot and saved myself a huge future headache.  The seller in my transaction was willing to remove it.  I would have walked if they didn't remove it.

@Jonathan Greene @Larry S. - Thank you both! I'm going to have my attorney reach out out to the sellers attorney and propose the idea of paying for some of the costs to remove the tank but in the event that there is some contamination, I'd want it in writing that I am not liable and it is the sellers responsibility. 

Hopefully this should entice them enough to remove the tank. If the seller still does not want to remove the tank, I'll walk away from this deal and continue looking for other opportunities. As you both mentioned, this is a big risk to take on and even riskier for a first time home buyer. 

if the tank cannot be removed because of its proximity to the building, you should require sampling per the NJDEP guidance and that the work be done by a licensed site professional. I've had some unusual home UST issues during the course of my career. hopefully your situation will be rather routine. 

BTW- one quick way to determine if the tank is leaking is to do a dip stick test with a paste that turns color when it comes into contact with water. It does not rule out leaking when groundwater is deeper than the tank but if water gets into the tank, it generally means oil is getting out of the tank.....

On the other hand, I've had lots of homes where either the tanks did not leak or if they did, they used no. 6 oil which is very viscous and does not migrate very far so costs will be limited.  

@Daljit Singh

I would just remove the tank.

Empty it of fuel.

Force air into it and vent from the top until the tank is dry.

You could fill it with TSP and water, air dry it again, and cut it up with a Sawzall for scrap.

Or sure, you can get a professional involved that could run you some big bucks.

Fuel tanks don't scare me. Not a deal breaker, but possibly a reason to lower the price that decommissioning amount.

Daniel Smyth and if the tank leaked, he would be responsible for a cleanup. tank cleaning does not address petroleum that may have leaked from the tank. several years ago, i had a client that incurred $400K in cleanup costs for a diesel tank that had leaked for years. sampling should ALWAYS been done regardless if tank is removed or closed in place. 

@Daljit Singh Last October I had 2 underground oil tanks removed in Northern New Hampshire. While I’m sure there are different costs and regulations, the company I used was 2 hours away and I had to pay for 3 trucks worth of equipment and 7 employees for the whole day to complete the project.

My total was only $5400 for both tanks and the testing. I’m sure your testing might be more extensive, 10 samples were taken from rack of my sites and tested on location. Yours might be sent to a lab.

I expect removing one tank would have been around $4000 with the cost of needing all the equipment and at least 5 of the men.

Depending on how big the tank is it might not be much more to remove the tank than to decommission it. Perhaps you could split the cost with the Seller somehow if the property otherwise “works”.

In NJ, i would expect home tank removal without contamination probably would cost around $10K if you're using a licensed environmental professional (recommended) as opposed to a tank company (not recommended). The bigger ones might cost upwards of $20K. if soil is contaminated, the cost depends on the volume of soil that needs to be removed. I tell clients to expect $25K-$50K as a reasonable worse case estimate. Once groundwater is contaminated, things get complicated and costly-especially if the home and others in the area use on-site drinking water wells.  

does your lender know their is an oil tank? if they do theyll ask for test or removal with NFA letter before closing. i bought few properties like this, lets touch base to see how i can better asset your situation as sounds like a good property if you get proper negotiations.

@Daljit Singh try out www.steve-rich.com  Steve Rich environment. They have a program to give you insurance coverage up to $20K on their soil testing . Hence they beat the 'crap' out when they conduct soil testing. 

Now there will be other investors who will suggest that costs can go up to $50k-$75K with the soil contamination but this is something better than nothing. 

I had a good experience with them early this year hence I am referring them to you. 

Good Luck!

@Daljit Singh   Be very careful.  You must follow the state and Federal regulations.  Your mortgage company will probably not lend on a potential hazardous situation, and if you fail to disclose it to the mortgage company, they can foreclose on your mortgage.  We have experience with USTs, I would not buy until the UST was removed or documented as legally decommissioned by the State.  If you proceed with a legal removal, you must be there and take tons of pictures.  If the tank has ever leaked and the soil is contaminated, it must also be removed and taken to a hazardous land fill.  Often time they burn the soil in a controlled situation like a incinerator.  Be Very careful.  You may be getting a great deal but buying a peck of trouble.