Liability Exemptions for Lenders
Lending institutions and representatives may involuntarily acquire contaminated properties through normal business practices. This can occur when the lender or representative comes into possession of a contaminated property in an unexpected manner, such as foreclosure. Fortunately, Wisconsin state law includes a provision known as the lender liability exemption, which provides conditional environmental liability protections to lenders and representatives.
Exemption history and overview
To alleviate environmental liabilities that lenders and representatives can face when acquiring contaminated properties, and to promote economic redevelopment of these properties, Wisconsin’s Land Recycling Law of 1993 (Wisconsin Act 453) created lender and representative liability exemptions. These exemptions were expanded in 1997 in Wisconsin Act 27 and again in 1999 in Wisconsin Act 9.
Lenders and representatives that meet the conditions established in s. 292.21, Wis. Stats., are not responsible for the remediation of a hazardous substance discharge per s. 292.11, Wis. Stats., commonly known as the "Spill Law."
Lenders may qualify for state liability protection at contaminated properties when:
- conducting normal lending;
- acquiring property through foreclosure;
- inspecting property;
- enforcing a security interest in personal property and fixtures; and
- acting as a representative.
For more information, please read Environmental Liability Exemption for Lenders and Representatives (RR-508). The fact sheet includes the following information:
- examples of lending situations where the lender liability exemption may be useful;
- definitions of "lenders" and "representatives;"
- definitions of lending activities eligible for a liability exemption from the state Spill Law;
- how to conduct environmental assessments for acquiring real property;
- lender exemptions from federal liability for underground storage tanks and Superfund; and
- frequently asked questions.
Obtaining the liability exemption
In order to be eligible for a lender liability exemption, a lender foreclosing on property with potential environmental contamination must comply with the requirements of s. 292.21, Wis. Stats., including, but not limited to:
- notifying the DNR of any contamination;
- not intentionally exacerbating an existing hazardous substance discharge to the environment or negligently causing a new discharge;
- implementing an emergency response action if necessary; and
- submitting a lender liability exemption environmental assessment of the property to DNR. The environmental assessment must comply with s. 292.21(1)(c)(2), Wis. Stats. and be completed during the year preceding acquisition of the property, or within 90 days following acquisition.
Lenders intending to qualify for a lender liability exemption must submit their environmental assessment to DNR within 180 days of acquiring the property. Submitting the environmental assessment to the DNR can be done in either of the following two ways:
- Completing and submitting the Lender Liability Environmental Assessment Tracking Form (4400-196), along with the environmental assessment. The DNR will keep the environmental assessment on file but will not provide a written response; or
- Completing and submitting a Technical Assistance and Environmental Liability Clarification Request (Form 4400-237), along with the Lender Liability Environmental Assessment Tracking Form (4400-196) and the environmental assessment. By including the $700 review fee and the necessary information, you will receive a written response from the DNR that clarifies your liability exemption.
The lender liability exemption is granted by statute, based on the steps outlined above and fully described in s. 292.21, Wis. Stats. If all the statutory conditions are met, lenders and representatives automatically acquire the exemption. They do not need written confirmation from the DNR. However, some lenders prefer a written liability clarification. In these situations, lenders pay a $700 fee for a general liability clarification letter from the DNR regarding their exemption.
Responsibilities of representatives and the conditions of their liability exemption are specified in s. 292.21(2), Wis. Stats., and differ somewhat from lender responsibilities conditions. For example, representatives are not required to perform environmental assessments. Like lenders, representatives may obtain a general liability clarification letter from the DNR regarding their exemption, for a fee. For more information about liability clarification letters, please see our Liability page.
Obtaining the liability exemption when an environmental assessment is more than one year old
The lender liability exemption environmental assessment is to be completed during the year preceding acquisition of the property or within 90 days following acquisition of title, possession or control of the property. However, a lender may submit an environmental assessment completed more than one year prior to acquiring a property, if the lender also conducts a visual inspection of the property after acquisition. A lender who conducts such a visual inspection must submit the visual inspection report to the DNR within 90 days of acquiring the property, along with the original environmental assessment and a $700 review fee. The DNR will review both the old environmental assessment and the more recent visual inspection report to determine whether the environmental assessment is adequate or whether more information is needed.
Federal liability exemptions for lenders
Subtitle I of the Resource Conservation and Recovery Act (RCRA) exempts certain lenders from liability for petroleum underground storage tanks. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as Superfund, also contains a security interest exemption which protects certain lenders.
To determine what specific actions will satisfy the federal lender liability requirements under CERCLA, lenders are advised to contact the U.S. Environmental Protection Agency (EPA) directly. Specific EPA resources are listed below.
- For EPA information about underground petroleum storage tank liability, enter publication number 510F95004 in EPA's national online publications system.
- CERCLA, Brownfields and Lender Liability Fact Sheet.
- 1997 Policy on Interpreting CERCLA Provisions Addressing Lenders and Involuntary Acquisitions by Government Entities