Why are lenders often reluctant to finance brownfield cleanup and redevelopment projects? Can lenders be held liable for cleanup costs at contaminated sites?

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Why are lenders often reluctant to finance brownfield cleanup and redevelopment projects? Can lenders be held liable for cleanup costs at contaminated sites?

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Historically, lenders have been reluctant to finance real estate transactions that involved environmentally risky sites. Lenders have two main concerns with respect to lending on contaminated property. First, they are concerned that uncertain cleanup costs and the borrower’s possible liability could impact the borrower’s ability to pay back the loan. If the borrower has difficulty paying back the loan, banks are concerned that the value of their collateral could be impaired and that it would be difficult for the bank to foreclose on the property. Second, lenders are concerned that they could be held liable for cleanup costs at the sites on which they lend. Recent legislation, The Asset Conservation, Lender Liability, and Deposit Insurance Protection Act of 1996, clarified the situations when lenders can be protected from federal liability at contaminated sites. Basically, a lender can not be held liable under CERCLA if it does not participate in the management of the site. In the last

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