…there are exemptions that protect lenders from liability for environmental conditions so long as certain requirements are met.
Readers may recall an earlier blog post regarding a bank’s potential liability for damage to private property caused by a tree falling onto a neighbor’s property. In addition to property damage from obvious unsafe conditions, banks should also consider the potential liability associated with potential, unseen environmental conditions on property it has foreclosed upon. Under Connecticut and federal law, landowners are typically responsible for the remediation of environmental contamination that exists on their property, regardless of who caused the contamination in the first instance. However, there are exemptions that protect lenders from liability for environmental conditions so long as certain requirements are met.
First, the entity that acquires the property via foreclosure must be a lender. Although “lender” is broadly defined, there are some entities, affiliated with banks, which may not be considered a “lender” who is exempt from liability. “Lender” specifically includes insured depository institutions, insured credit unions, banks or associations chartered under the Farm Credit Act, and a leasing or trust company affiliated with an insured depository institution as well as “any person (including a successor or assignee of any such person) that makes a bona fide extension of credit to or takes or acquires a security interest from a nonaffiliated person.”
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