Colorado Real Estate Journal -
Developers dealing in vacant land have myriad risks and issues to navigate. Whether these issues are zoning ordinances, easement rights, or environmental concerns, title professionals and the insurance they provide can be a helpful tool to mitigate risk. This article highlights the enhanced security ALTA 8.1-06 and ALTA 8.2-06 title insurance endorsements can provide to one’s environmental due diligence. Like all due diligence, environmental due diligence seeks to determine whether the property presents a liability risk. As it relates to this article, environmental protection laws provide for the cleanup of hazardous wastes. Traditionally, in the environmental due diligence realm, remediation liability under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C.A. §§ 9601 et seq. (CERCLA) is the greatest, including the environmental protection lien. An environmental lien is a financial instrument that takes the form of a charge, security, or encumbrance on title to real property. The notice may be filed in the County Clerk & Recorder Office of the county where the property is located, or in the office of the clerk of the United States district court for the district in which the real property is located. A search of the chain of title is one tool to discover environmental liens and it also serves as a means to discover information on past owners who may have managed hazardous substances on the property. If an environmental lien is present on the title to the property, it can be assumed that an environmental condition exists or has existed at the site and the lien is being used to secure payment of a cost or debt arising from a past response or cleanup on the property. The environmental lien imposed by CERCLA arises at the later of either: 1. The time costs are first incurred by the United States with respect to a CERCLA response action. 2. The time that the owner of the property is provided, by certified or registered mail, a written notice of potential liability.
The lien continues until the liability for the costs (or a judgment against the person arising out of such liability) is satisfied or becomes unenforceable because the statute of limitations has run as detailed in 42 U.S.C.A. § 9613(g)(2). Fortunately, the environmental lien does not enjoy super priority status. This means any purchaser, holder of a security interest, or judgment lien creditor whose interest is perfected before notice of the lien has been filed in the appropriate office within the state is afforded the same protections against the lien as are afforded against a judgment lien arising out of an unsecured obligation. Still, for would-be purchasers and prospective lenders, this is no safe-harbor. Title insurance protects against the risks associated with the title to real property so that owners and lenders may reap the benefits of property development. As part of the mitigation of environmental risks, title insurance offers an ALTA Endorsement 8.1-06 (Environmental Protection Lien) or ALTA Endorsement 8.2-06 (Commercial Environmental Protection Lien). ALTA 8.1-06 is available only for loan policies that cover residential property. In contrast, ALTA 8.2-06 covers owner’s and loan policies for commercial properties. Both endorsements protect against loss or damage sustained by reason of an environmental protection lien recorded in the public records or filed in the records of the clerk of the United States district court for the district in which the Land is located. The protection applies if the lien is recorded or filed before the date of the policy and the environmental protection lien is not set forth as an exception in Schedule B of the policy. These protections can be especially desirable since liability under CERCLA can be imposed retroactively and without any regard to causation or fault, leaving the current owner (or future owners) with all the liability and having to “clean up the mess” both literally and figuratively. ALTA 8.1-06 and ALTA 8.2-06 endorsements do not negate the need for other environmental due diligence in the Phase I, nor negate the efficacy of hiring an environmental professional to perform “all appropriate inquiries.” Still, ALTA 8.1- 06 and 8.2-06 offer another affordable layer of protection to safeguard the economic benefits flowing from the project.