&EPA j
Lender Liability and Applicability of All
Appropriate Inquiries
What is CERCLA?
The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA),. :also known asSuperfund,
authorizes the U.S. Environmental Protection Agency (EPA) to respond to human health and environmental hazards
posed by hazardous substances at properties. Under CERCLA, EPA can require liable parties to conduct cleanups, or
EPA can conduct a cleanup and subsequently recover cleanup costs from liable parties. Section 107 of CERCLA defines
a liable party as:
•	The current owner and operator of a contaminated property.
•	Any owner or operator at the time of disposal of any hazardous substances.
•	Any person who arranged for the disposal or treatment of hazardous substances, or who arranged for the
transportation of hazardous substances for disposal or treatment.
•	Any person who accepts hazardous substances for transport to the property and selects the disposal site.
Under Section 101 (20)(A) of CERCLA, a person is an "owner or operator" of a facility (or property) if that person:
(1) owns or operates the facility or (2) owned, operated or otherwise controlled activities at that facility immediately
before title to the facility, or control of the facility, was conveyed to a state or local government due to bankruptcy,
foreclosure, tax delinquency, abandonment or similar means.
Are lenders liable for contamination under CERCLA?
Banks that hold mortgages on property as secured lenders are exempt from CERCLA liability if certain criteria are met.
CERCLA Section 101(20) contains a secured creditor exemption that eliminates owner or operator liability for lenders
who hold ownership in a CERCLA facility primarily to protect their security interest in that facility, provided they
do not "participate in the management of the facility." Generally, participation in the management applies if a bank
exercises decision-making control over a property's environmental compliance, or exercises control at a level similar
to a manager of the facility or property. Participation in management does not include actions such as conducting
property inspections, requiring a response action to address contamination, providing financial advice or renegotiating
or restructuring the terms of the security interest. The secured creditor exemption also provides that foreclosure on
a property does not result in liability for a bank, provided the bank takes "reasonable steps" to divest itself of the
property "at the earliest practicable, commercially reasonable time, on commercially reasonable terms." Generally, a
bank can maintain business activities and close down operations at a property as long as the property is listed for sale
shortly after the foreclosure date or at the earliest practicable, commercially reasonable time.

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How did the Brownfields Amendments
change CERCLA liability?
In 2002, Congress passed the Small Business
Liability Relief and Brownfields Revitalization Act
(the Brownfields Amendments), which created a
new landowner liability protection from CERCLA for
bona fide prospective purchasers (BFPPs). Before the
Brownfields Amendments, a person who purchased
property with knowledge of the contamination was
subject to owner or operator liability under CERCLA.
Since the enactment of the Brownfields Amendments,
prospective landowners can now purchase property
with knowledge of contamination and obtain protection
from liability, provided they meet certain pre- and
post-purchase requirements.
To qualify as a BFPP, a person must:
•	Not be potentially liable for contamination on or at
a property.
•	Have acquired the property after January 11, 2002.
•	Establish that all disposal of hazardous substances occurred before the person acquired the facility.
•	Make ail appropriate inquiries into previous ownership and uses of the property before acquiring the property.
•	Not be affiliated with a party responsible for any contamination.
To maintain BFPP status after purchasing a property, landowners must comply with "continuing obligations" during
their property ownership. To comply with the continuing obligations, BFPPs must:
•	Provide all legally required notices for the discovery or release of a hazardous substance.
•	Exercise appropriate care of the hazardous substances by taking reasonable steps to stop or prevent continuing
or threatened future releases and exposures, and to prevent or limit human and environmental exposure to
previous releases.
•	Provide full cooperation, assistance and access to individuals authorized to conduct response actions or natural
resource restoration.
•	Comply with land-use restrictions and not impede the effectiveness of institutional controls.
•	Comply with information requests and subpoenas.
What are "All Appropriate Inquiries"?
All appropriate inquiries (AAI) is the process of evaluating a property's environmental conditions and assessing
potential liability for any contamination. AAI requirements apply to any party who can potentially claim protection
from CERCLA iiability as an innocent landowner, contiguous property owner or BFPP. EPA recognizes ASTM
International Standards E1527-13 "Standard Practice for Environmental Site Assessments: Phase I Environmental Site
Assessment Process" and E2247-16 "Standard Practice for Environmental Site Assessments: Phase I Environmental Site
Assessment Process for Forestland or Rural Property" as fully compliant with the AAI final rule.
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The Rath Packing Company plant prior to
renovation, Waterloo, IA.

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How does AAI apply to lenders?
The AAI rule primarily applies to borrowers who want
to claim protection from CERCLA liability as innocent
landowners, bona fide prospective purchasers or
contiguous property owners. The rule does not
change the CERCLA liability exemption for banks that
hold mortgages on property as secured lenders. The
secured lender exemption is not conditioned by a bank
or lender undertaking AAI before issuing a mortgage or
before the borrower purchases the property.
Although banks and lenders have protection from
CERCLA liability through the secured creditor exemption,
banks may choose to further protect themselves from
loss (due to decreases in the value of the property or
collateral) by requiring that borrowers qualify for liability
protections. Banks, therefore, may want to encourage
their borrowers to comply with the provisions established
for BFPPs and ensure that borrowers properly conduct
AAI before acquiring a property.
It is important to note that it is still possible for a bank or lender to be liable for contamination on or at a property if
the bank or lender is found to be acting as either an owner or operator of a contaminated property. See above for the
explanation of the secured creditor exemption and the definition of "participation in the management" of a property.
Also, even if a financial institution qualifies for the secured creditor exemption from CERCLA liability, it is still possible
that the state has stricter laws governing lender liability for contaminated properties.
Exterior of the former Construction Machinery
Company site. An EPA Hazardous Substance
Cleanup Grant helped address contamination at
this site, where buildings were neglected after
the company closed in the 1990s.
Further information
For more information, visit the EPA Brownfields website at www.epa.gov/brownfields.
EPA-560-F-17-192

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