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Joe and Jill Brown buy a beautiful home on three acres only to discover a year later that their backyard is contaminated with a dangerous pollutant. The chemical has begun to leach into their drinking water and they're afraid for their health and the health of their children, not to mention their plummeting property value. What can they do?
The Browns have discovered one of the most legally dangerous areas in real estate today: environmental pollution on residential property. Liability laws are written such that unsuspecting home buyers, sellers and lenders may become responsible for millions of dollars in damages and clean-up—even though the pollution may have occurred years before any of the current parties were involved.
People often think that hazardous waste and toxic chemical problems only occur on industrial properties. Unfortunately, they're wrong. In the course of conducting over 50,000 residential inspections, we have seen many homes contaminated with soil, groundwater and other environmental pollution.
Photography, gardening and other surprising pollution-makers
Because of the toxic chemicals involved, hobbies like photography and home brewing, and home businesses such as auto repair and furniture stripping, can cause site pollution. Pesticides and herbicides--the gardener's helpmates--can also contaminate soil. When waste water or sewage disposal is located near water wells, pollutants may migrate into the water supply. And overhead power lines and transformers can emit electromagnetic radiation and other health hazards.
Indoors, unlikely sources such as carpeting, carpet pads, humidifiers, and heating and cooling equipment may produce pollutants. And despite their charm, older homes often harbor additional problems. For example, asbestos, found in the heating systems, chimneys and floor and ceiling materials, and lead, found in the paint and plumbing, can pose risks.
Homeowner and lender liability
Testing for these problems can be quite inexpensive, but the solutions are never cheap. Under a complex EPA guideline called the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), an owner of a contaminated property is strictly liable for the entire cost of clean-up--even when someone else caused the pollution!
Even though there is an "innocent landowner defense" under CERCLA, it requires that the purchaser didn't contribute to the pollution problem AND that before obtaining the property, he or she conducted a thorough investigation that failed to disclose the problem.
This means that banks are at risk, too. Lenders who have foreclosed on contaminated properties or who have received a deed-in-lieu can be held liable under CERCLA. Moreover, in addition to the liability for the clean-up, a lender who acquires a contaminated property may also be liable for damages caused by the pollution to other property owners or persons.
The environmental review and other liability safeguards
So what can buyers, sellers and lenders do to protect themselves from this sort of liability? First and most important, they should consider getting an environmental review (a Phase 1 environmental site assessment) of the property before they acquire it. They should also consider obtaining warranties, limitations of liability and covenants against any hazardous materials on the property, together with indemnification agreements whenever possible.
Finally, they should also look into the availability and cost of insurance that protects owners against problems like these.
Today's buyers, sellers and lenders are in a most difficult situation. While the steps outlined above don't guarantee protection (insurance may not be available or cost-prohibitive, and warranties are only as valuable as the financial strength of the company who grants them), they can help. Environmental audits, however, are an essential form of protection against environmental hazards liability.
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Eight Home Hazards Starring, in alphabetical order
Asbestos. This thermal insulation material is typically found on heating system components, wall and ceiling materials, floor coverings and certain adhesives. Government regulations make removal and disposal complicated and costly. Inspections can determine the presence or absence of asbestos and identify its types, quantities and conditions.
Electromagnetic Fields. The EPA has determined that high-power electrical line emissions are capable of causing leukemia and brain cancer. Simple testing can identify EMF levels and risks.
Indoor Air Pollution. Did you know that the air in homes and other buildings can be more seriously polluted than the outdoor air in big cities? The two major causes of poor indoor air quality, which at best makes people feel unwell and at worst causes or exacerbates life-threatening illnesses, are contaminants such as asbestos and radon and inadequate ventilation systems. A thorough inspection will point out potential pollution sources and advise further testing when necessary.
Lead. Toxic concentrations of lead, typically found in older paint and plumbing, can also pose health hazards. Lead can impair mental and physical development in fetuses and young children, as well as decrease coordination, damage the kidneys and nervous system and increase high blood pressure. Simple testing can identify its location, condition and appropriate remedial action.
PCB's. Polychlorinatedbi-phenyls~liquid insulating materials previously used in fluorescent lighting parts and electrical transformers are highly toxic and difficult to remove, transport and dispose of. Inspection, however, is simple and relatively inexpensive.
Radon Gas. Ubiquitous radon is an invisible, odorless, cancer-causing gas produced by radioactive elements as they decompose. Simple alpha-detection tests can determine radon concentration within 48 hours.
Soil Contamination. Drilled sampling and laboratory analysis can identify the presence (or absence) of soil contamination, typically caused by improper hazardous waste disposal. Testing can identify run-off or seepage from agriculture, mining, oil and gas activities, underground tanks and natural pollutants. Subsequent environmental reports can evaluate the health hazards and propose remedies.
Urea. Formaldehyde Foam Insulation (UFFI). Commonly used in the late 1970s and early 1980s, this dangerous insulation material releases toxic gases, which in turn can produce respiratory irritation. On-site air sampling and solid sample analyses of suspect materials can yield useful information about UFFI in your home.
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