incidents that have received regulatory closure and are not considered
to be a current concern, but there is
confusion around the term. If a release incident was given regulatory
closure under standards that were
less stringent than current standards, should the incident be considered historical or current?
• user requirements: Who is the user
of the Phase I ESA report? The word
“user” was originally meant to refer to the prospective purchaser
and those who would seek protection from liability from the Comprehensive Environmental Response,
Compensation, and Liability Act
(CERCLA). In practice, many lenders are the ones relying on these reports to make business decisions,
however. Lenders are not necessarily looking for CERCLA liability protection, so are lenders the users?
If so, are they required to complete
the user responsibilities? Often
lenders do not have any knowledge
of the subject property and will
not complete user questionnaires
for legal reasons. These issues
carry many implications, including
whether a large percentage of the
Phase I ESA reports completed for
lenders would be considered compliant with the Environmental Protection Agency’s All Appropriate
Inquiry rule.
« CHANGE continued from page 24
• definition and role of the ep: A constant topic of debate in the industry
is the definition of an environmental professional and whether an EP
should be required to conduct site
inspections. An EP currently is defined as having five years of experience plus an appropriate degree.
The Phase I ESA can be conducted
under the supervision of an EP,
which means that less-experienced
personnel can conduct the site
visit. The requirement for the EP to
conduct the site visit could raise the
quality of reports but likely would
increase costs as well.
Many other points are being discussed, including non-scope items
that are not required to be included
in the Phase I ESA, like asbestos and
lead-based paint.
• • •
These discussions are expected to
continue this year, as the committee
continues to meet and vote on issues
that could have a direct impact on the
future of environmental due diligence.
A decision on these changes likely
won’t be final until 2013.
Change is never easy, but if commercial mortgage brokers stay on
top of changing environmental due-diligence policies, they can best advise their clients as to the work that
needs to happen before financing
can be secured. •
casualties. In the event of a major casualty, it is customary that the lender
receives insurance proceeds and
decides whether to make those proceeds available for restoration or apply them to the underlying debt. The
commitment letter should at least establish a basic mechanism for the release of insurance proceeds if certain
conditions can be established.
« CLOSE FAS TER continued from page 34
Timing matters
Commercial mortgage brokers should
advise borrowers to pay attention to
insurance requirements while the commitment is still being negotiated. This
includes reviewing those requirements
with an insurance professional prior to
signing a commitment letter. This may
seem obvious, but often borrowers are
surprised to find that the requested
coverage is either very expensive or
prohibitive when it is too late or inconvenient to raise the issue.
If it becomes known, before to
signing the commitment, that the requested insurance is problematic, the
borrower may ask the lender to waive
the coverage request in exchange for
recourse liability to the borrower in
the event of losses originating from
the uninsured risk.
If a lender requests a personal guar-
anty as part of a loan transaction, the
borrower should ascertain the scope of
the guaranty in the commitment. Advise
the borrower to limit the liability of prin-
cipals as much as possible. There are
dozens of ways to limit a guaranty be-
fore the commitment letter is signed.
For example, it can only be triggered
for certain “bad acts,” such as fraudu-
lent misrepresentations to the lender or
capped at a dollar amount.
• • •
It is important for lenders, borrowers
and their respective brokers and at-
torneys to consider and address the
issues of loan commitments early
in the financing process. More work
upfront can save time and money
once loan documents are produced.
Your focus should be to address the
legal issues while keeping the com-
mitment as a workable document in-
side the underwriting considerations
of the lender — a feat that is by no
means easy. •
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Contact Keith Kennedy at extension #1 • KKennedy@CentennialBank.com
www.CentennialBank.com
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