Site Contamination

mobile home university
1

Hello,

I’m looking at a deal where the seller will provide seller financing with non-recourse. However, there may be a chance that the site may

be contaminated. Overall, it’s a decent deal. I have not done Phase I yet, however, if in the case that it is contaminated,

how do I transfer or mitigate the risk to the insurance company or to the seller?

a) Could I have seller purchase a 10-20 year contamination insurance on behalf of the buyer?

b) Could I have the seller sign an agreement that the seller will be responsible for any contamination that occurred before closing?

c) Is there a way to bypass the Phase I and Phase II costs to the seller so there is no upfront fee during the due diligence?

d) Which insurance companies provide a good overall protection for pollution?

e) If the property is purchased as a LLC, will the “members” be personally liable be for the pollution cleanup if later is found

to be contaminated and the LLC does not have the ability to clean up the pollution or will the legal liability stop at the LLC level?

Thank you very much guys~

2

The type of contamination is important. Some things can be cleaned up and it will never be a problem, small underground gas tank for example. Others you can’t ever get rid of. Your info is not complete enough to really say.

You can put in the contract the seller pays for the phase I & II and all clean up if needed. Then if there is a chance it will come back and the cost to clean up is not affordable, walk away.

From the little info you gave, the deal would have to amazing to go through the effort.

You will need to have professionsals look at it and give estimates.

3

I would only proceed with a Phase 1. If you think it likely that the property is contaminated, I’d just put that cost back on the seller and make him/her pay for it. Tell him/her that if the property checks out clean, that the investment in the Phase 1 (about $1,000) will be an asset to them. If the property is contaminated, then I’d probably make them do all the remediation (and/or just walk away from the deal).

There can be many hidden costs with cleaning up contamination. But the biggest may be your time. What is your time worth? You are likely to miss other great deals if you are spending time cleaning up a property.

I’d probably not touch a property until it was certified 100% clean. There are just too many other good deals out there to mess with a contaminated property.

Your mileage may vary,

-jl-

4

There is no adequate protection for pollution related to USt’s if they have leaked if you purchase a property. That being said, I actually look for parks with these types of problems. You have to be able to afford the capital it will take to fix the park because no bank is going to loan you money.