Inheriting Contaminated Properties

Mon. Dec. 11, 2017
Inheriting a contaminated property could bankrupt you.

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If You've Inerited Contaminated Property

Disclaimer:

Nothing on this web page, or anywhere on this web site, is to be construed as giving legal advice, nor is it intended to replace the counsel of your own legal and financial advisors. This information is intended to help make you more aware of issues that you should consider and then discuss with your own legal and financial advisors. For further disclaimer information, please see our Terms of Use.


Note:

The terms inheritance and heir refer to the succession of property from a decedent who has died intestate (someone who dies without a will). It's a common error to call recipients of property through a will as heirs, when they are properly called devisees or legatees. That said, for purposes of this web page we will use the more common terms.

If you Inherit property, and that property is polluted, you may be inheriting years of hassles, aggravation, lawsuits, and financial disaster. It is possible that the total liabilities associated with a contaminated property may be much more than the property is worth.


So if you've already inherited a property, you should immediately consult with experienced attorneys, and retain an environmental consultant.

If you may inherit such a property in the future, you should carefully investigate it before accepting the inheritance. Determine what it's worth, and what the liabilities are. Only you can decide if this is a project you're comfortable taking on, depending on your resources, sophistication, time and location.

Before Inheriting: What Should You Do?

If you are in line to inherit potentially contaminated real estate:

Know that you have a choice.

You are not required to accept an inheritance. You can disclaim it or renounce it. If you are bequeathed multiple separate items, such as cash and jewelry, you can accept one and not the other. (But you can't take only part of a piece of property, and reject the remainder.) It is very important to discuss these issues with an attorney knowledgeable in the area of wills & probate.

If you are fortunate enough to be considering these issues before the benefactor has passed, speak with an estate planning attorney, as well as an environmental and tax attorney.

  • Hire an Attorney

    You should consult with your regular family attorney and accountant, but in addition to that, be sure that the attorney who is your primary advisor is experienced in the complex and ever-changing area of environmental law.

    Do you need a lawyer, but don't feel that you can afford one? As a general rule, free legal advice is only available to people who cannot afford a lawyer. Legal advice on topics such as environmental law is probably not available on a pro bono or discounted rate. However your circumstances may be such that you may be able to receive some assistance. You should check. To locate legal services in your state, please see our Legal Aid web page.

  • Also Hire an Environmental Consultant

    If there is any chance that the property may be polluted, your attorney will almost certainly hire an environmental consultant to evaluate the property, before allowing you to accept it as an inheritance. The environmental consultant will study the property, beginning with what is called; Phase One.

    A typical "Phase One" environmental report consists of a review of public records and other available information associated with the property, including a title search, and researching various databases and records, to learn as much as possible about the historic uses of the property. They'll review historic aerial photos and maps, insurance records, and gather all available information from regulatory agencies. Then there is an on-site investigation.

    If the Phase One investigation shows indicators of potential contamination, further testing called ;Phase Two will be conducted. This involves samples of the air, water and soil on the property, and if appropriate gathering ;scrapings or other ;specimens from the property and it structures. These are all carefully stored and cataloged, and sent to special labs for analysis.

    If there is contamination on (or near) the property, the Phase One report should detect it, and the Phase Two report should better quantify it. At this point your environmental consultant and environmental attorney may be able to give you some sense of the liability, in terms of time and money.

    For relatively small properties that are contaminated, it may not be prudent for unsophisticated heirs to accept the inheritance. Accepting the beQuest puts your family finances potentially at risk for whatever it costs to clean up the property, as well as liability for what damages may be due to other people and properties as a result of your polluted property.

    Also, undertaking this kind of recovery project can take years, and many thousands of dollars to lawyers and consultants, even before you start fixing and cleaning the property.

    In the meantime you will have paid inheritance taxes, and you became liable to pay real estate taxes, insurance, maintenance, and perhaps a mortgage. If others had claims against the property, you will have inherited the property subject to these claims.

  • Conduct Due Diligence

    As a beneficiary you must conduct due diligence, or the estate distribution process may be delayed. Many professional trustees will refuse to assume responsibility for contaminated properties in a trust or estate. How can you avoid these problems?

    The old adage holds true: an ounce of prevention is worth a pound of cure. If you know a relative or potential testator owns potentially contaminated property, address the issue now, and begin clean-up efforts. If this is done before the owners death, you may have more options. Certainly you'll have more time and less stress.

    Often the costs of delaying pollution clean-up grow significantly over time. Discuss specifics with a reputable environmental engineering firm or an attorney knowledgeable in this area.

    If you suspect that a property may be contaminated, check it out thoroughly before you become the owner. If it looks like it might be more of a liability than you can handle, ask your advisors for alternatives.

    If you decide to keep the property, the most important step to protect yourself is to avoid being classified as a PRP in the first place. An experienced environmental lawyer should be able to help you do this.

    But even if you are declared an innocent owner, that only means you don't have personal liability. It does not mean you can keep the property but get someone else to clean it up. If the property is worth $100, and the contamination will cost $200 to clean up, you still have nothing except aggravation and the legal bills for having yourself declared an innocent landowner. So unless you successfully sue others to clean it up, which can take years, even being innocent does not mean the property is worth anything.

  • Is It Worth It?

    Your attorney should order a full title search to determine all liens against the property, and an appraiser to determine the if clean and unencumbered value of the property. Then knowing what it's worth, and the cost to clear all liens and taxes, you can begin to estimate its value. Deduct the estimated costs to investigate and clean the property, and then deduct the soft costs such as borrowing money and paying for the property while it's being cleaned up. Then figure out what your time is worth, and what additional reserves are appropriate for the unknowns associated with any cleanup. Considering all these factors, you and your advisors may be able to establish a reasonable estimate as to the as is value of the property. Consider Selling It

    If you want to get something for the property, without becoming liable for the pollution, and without advancing significant money for research and due diligence, ask your family and your financial advisors about ways to sell it without entering the chain of title.

    Already Inherited?

    You Can't Give it Up

    You can't just give it up and walk away!Once you accept an inheritance, it's yours. Even if you stop paying the taxes and allow someone to foreclose, you may remain liable for environmental issues. It's like something you can't get off the bottom of your shoe! Once you're liable, it's hard to get "off the hook."

    You Can't Sell It

    You may not be able to sell the property. Most buyers (or their lenders) now require environmental tests before they close on a property. If there is any hint of pollution, the sale may be delayed, the price may be reduced, or cancelled.

    Even if you sold it to an unsophisticated buyer who didn't know or care enough to test for contamination, you're still not off the hook. Because you were in the "chain of title", you will be considered a Potentially Responsible Party (see below) and you may still be held liable for any future contamination found.

    You're Held Responsible

    As with any inheritance, you are taking it subject to all existing liens that run with the land, including mortgages, unpaid taxes, and other liabilities, as well as possible future liabilities.

    The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) is the main federal law regarding liability for contamination, especially as it relates to third parties, such as people who inherit or otherwise acquire contaminated properties. In general, CERCLA tries to insure that the taxpayers don't ultimately have to pay to clean up thousands of contaminated properties. So CERCLA makes the polluters pay. But if the polluters can't be found, or can't pay, then others with less direct responsibility are made to pay. Under CERCLA, a Potentially Responsible Party (PRP) is anyone who:

    1. Generated hazardous waste found on the property,
    2. Transported hazardous waste to the property,
    3. Disposed of or arranged for the disposal of hazardous waste on the property, or
    4. Ever owned or operated the property.

    PRPs who inherit contaminated property fall under the category of owner PRPs.

    All PRPs are jointly and severally liable for the cost of cleaning up the property. This means that a single PRP could be required to pay for the entire cleanup, even if other PRPs caused most of the contamination. The theory is that these PRP's may not be directly responsible, or they may be responsible for only a small part of the pollution. However they're certainly more responsible than a retired teacher in another state whose tax dollars would have to pay for the cleanup. CERCLA tries to get contaminated properties cleaned up, with minimal cost to the taxpayers. It's a good idea, and trying to be fair. But it doesn't always work out that way.

    The current owner of the property is usually the first PRP to be targeted.

    But You're an Innocent Owner!

    Fortunately, CERCLA provides a limited exception to liability known as the innocent landowner defense. This defense does not apply to PRPs who owned the property when the contamination happened, even if they didn't know anything about it. It only protects PRPs who acquire the property later. This would include people who inherit it.

    However, to enjoy the protection of the innocent landowner defense, people who inherited the property must prove that they got it thru inheritance or bequest after it was contaminated. That's not as easy as it sounds. What if you were in business with the relative from whom you inherited the property? Depending on your exact involvement, you might be liable as a former operator of the property. Also, once you own it, you must take reasonable measures to avoid making the contamination worse.

    Most states have their own environmental statutes. Some have liability schemes that are very similar to the federal law. Some states are even more onerous, and may not recognize the innocent landowner exception. Others are more lenient, and may expand the PRP exception to people who owned the property when the pollution happened, but didn't know about it.

    In addition to environmental statutes, most states recognize the common law claim of nuisance. Generally, a nuisance is any condition of your property that prevents a neighboring property owner from using his/her property. So if contamination spreads from your property to an adjoining property, the owner of that other property could sue you for damages, and force you to clean up his/her property. The fact that you did nothing to create the problem is not usually a defense.

    It is very important to investigate potential inheritances before you accept them. You must evaluate whether cleaning up the contamination will cost more than the property is worth. If the costs will outweigh the benefit of keeping the property, you may wish to disclaim or renounce the inheritance.

    So if, for example, you are the presumptive inheritor of a gas station, or land that was used for a commercial purpose, or even a small apartment house that may have had fuel oil tanks in the ground, you must be careful to first determine if there is any pollution evident. Ask your attorney to hire an environmental consultant, who should conduct a ;Phase One environmental review.

    The scope of environmental liability for decedents estates is growing. The danger isn't just limited to gas stations or factories any more. Even a home or a farm can be contaminated. For example, if you inherit a house with an underground fuel oil tank, or a farm with long term pesticide usage, or spills, you could become personally and unconditionally liable to clean up the property, and worse, you could be sued for the damage that the contamination did to other properties and people who didn't even step foot on your property. It could be a nightmare.

    If you already own it, and you believe it's polluted, all is not necessarily lost.

    Under the right circumstances you may be able to sell it to a knowledgeable investor who will accept it as is, and agree to be responsible for cleaning up the contamination. You may even get an indemnity for some of the liability.

    In this scenario it is important to insure that the party buying the property from you knows what they're doing, and that everything you are being told is accurate and truthful. Once again, the advice of your own financial and legal advisors, knowledgeable in this area of the law, is crucial. You should never enter any real estate transaction without the advice of your own attorney, and this advice is all the more important when environmental issues are involved.


    Sell It?

    If the property is in New Jersey, New York, or parts of Pennsylvania, and if you are interested in selling it, we hope you will speak to us. Cherokee is an experienced buyer of distressed properties. We can quickly evaluate a situation and offer you guidance. For a free, no-obligation conversation, please contact Jay Wolfkind at Cherokee Group at (732) 741-2000.


    Learn More

    We invite you to learn more about current environments laws, and review our comments regarding the balance between our responsibility to our neighbors, and our children, on our web page entitled: Links to Environmental Regulations + Sustainable Communities.

    You can also learn more about contaminated properties at this web page.

    We invite you to learn more about current environments laws, and review our comments regarding the balance between our responsibility to our neighbors, and our children, on our web page entitled: Links to Environmental Regulations + Sustainable Communities.

    At Cherokee, we believe "community development" also means consideration for sustainable communities. We are committed to being part of the solution, and we welcome your feedback on this topic. Thank you.