Searching for Environmental Cleanup Liens Under EPA's New Rule

Unraveling EPA's new rule on recorded environmental cleanup searches

• By Dianne Crocker
• Nov 19, 2007

A search for recorded environmental cleanup liens is just one of many elements required by the U.S. Environmental Protection Agency’s All Appropriate Inquiries (AAI) rule. Although a year has passed since the rule took effect, the emphasis on lien searches, coupled with the rule’s flexible approach as to where responsibility for the search lies, leaves many environmental professionals scratching their heads when it comes to the best way to tackle this complicated issue. 

The ABC’s An environmental lien is a financial instrument that takes the form of a charge, security or encumbrance on title to a property. The presence of a lien, used to secure payment of a cost or debt arising from past response actions or cleanup on a property, suggests that environmental conditions exist—or have existed—onsite. In today’s post-AAI world, land title records—one of ASTM’s eight standard historical sources— have taken on new significance as a critical research tool. Not only do they continue to serve as an important historical resource; they are also emerging as an essential instrument for identifying environmental liens. (Land title records also help satisfy another critical element of AAI: identifying institutional and engineering controls (ICs/ECs). Collectively referred to as activity and use limitations (AULs), ECs are physical mechanisms, such as fencing, man-made barriers and warning signs that restrict a site’s access or use, while ICs impose legal or regulatory restrictions on a property’s use and can include such mechanisms as limitations on land use, zoning or excavation.) While AULs didn’t become popular until the 1990s, when states began to adopt so-called risk-based cleanups, environmental liens have been employed since Superfund was enacted in 1980.

The Requirements
The AAI rule merges the liens search requirements with an emphasis to search for AULs that may be in place at a particular property. Specifically, under Section 312.25, EPA says that “all appropriate inquiries must include a search for the existence of environmental cleanup liens against the subject property that are filed or recorded under federal, tribal, state or local law.” This is further clarified in the rule’s preamble: “Reasonably ascertainable recorded land title records and lien records that are filed under federal, tribal, state or local law should be reviewed to identify environmental liens or activity and use limitations, if any, that are currently recorded against the property. Environmental liens and activity and use limitations that are imposed by judicial authorities may be recorded or filed in judicial records, and, where applicable, such records should be reviewed.” Indeed, the environmental lien search is one of ten criteria Congress specified as mandatory for satisfying AAI.

Although an environmental lien search was required under the previous Phase I protocol, ASTM standard E 1527-00, there are several important factors that have made the step hard to ignore post-AAI. For one, while the lien search has traditionally been addressed as a user responsibility, the AAI rule allows the search to be performed either by the user or by an environmental professional (EP) as an added-scope element. Secondly, because it carries the weight of a federal rule versus a voluntary standard, the AAI rule exposes EPs to more scrutiny and potentially more liability. Indeed, the statement required by AAI: “[I/We have developed and performed the all appropriate inquires in conformance with the standards and practices set forth in 40 CFR Part 312”  underscores the fact that EPs must address every element of the investigation, including the lien search, for AAI to be met. Finally, in its cost analysis of the rule, EPA acknowledges that, when compared to the baseline, ASTM’s E 1527-00 standard, satisfying the AAI rule’s lien search requirement necessitates an added level of effort.

The Search
The AAI rule makes it clear that searches for recorded environmental cleanup liens are mandatory, yet its language has generated uncertainty over what exactly is required, how to satisfy those requirements, what sources can be used, and how the requirement should be addressed in the Phase I report.

Under the AAI rule, either the user or the EP can conduct the search for environmental cleanup liens. If the user conducts the search, he or she is not obligated to share the information with the EP, however EPA recommends that if a client does not provide search results, EPs should treat the lack of information as a data gap and comment on the significance as it relates to their ability to identify conditions indicative of releases or threatened releases.

“Many larger clients have decided not to ask for the lien search during the Phase I process because their internal departments are doing title checks as part of their transaction, and they ask them to search for liens,” says Richard Fehler, QEP, REA, an environmental professional with Bureau Veritas North America, Inc. “That works fine, as the client is not required to give the lien information to the consultant. This assumes, of course, that the EP does not consider this to be a significant data gap, though it rarely will be.”

Regardless of who assumes responsibility for the lien search, EPs should clarify in the project’s scope of work and contract language exactly how the liens search will be handled—and by whom. It is also a good idea for the EP to provide users with a questionnaire that spells out the user’s duties and clearly states that ignoring any requirements could result in a failure to qualify for CERCLA liability protection. This is easier said than done: In a survey of 750 environmental professionals conducted by this author’s firm in mid-August, EPs reported that about half their clients have been unwilling to complete the questionnaire.

Chain of Title Searches May Not Be Enough Put another way, the chain of title may include information on liens as well as information on past owners who may have managed hazardous substances on the property, but preliminary title reports do not necessarily contain searches for liens or AULs unless specifically requested by the person ordering the report. Furthermore, the user—or the user’s attorney—typically does not order a chain of title until after the Phase I is complete. By then it is too late to factor the information into the Phase I analysis. Also, while it is possible that an environmental lien or AUL may turn up in other areas of Phase I research, the inquiry is not complete unless a specific lien search has been conducted, and the inquiry must include a search of land title records. If a search for recorded environmental liens is not conducted either by the consultant or the user within the guidelines laid out in the AAI rule, or its acceptable alternative, ASTM’s E 1527-05 standard, the danger is that a court could rule that AAI was not met. To play it safe, EPs contracted to perform a lien/AUL search should start with either a database company that specializes in providing environmental information, or a title search company that is specifically directed to focus on liens/AULs. Such routes will ensure that important local knowledge comes into play. “In most cases, a firm that specializes in title or lien searches is a good choice,” says Agadoni. “You may also want to do a second check if your state/municipality has information online or if you are at the office where the liens are recorded.”

Today, among users who are aware of AAI’s lien search requirement—typically large banks, institutional investors, and the like—an increasing number are electing to outsource the work to their EP. In fact, the aforementioned survey found that, of the 66 percent who offer clients the option of adding an environmental lien search to the Phase I report, the client chooses to do so nearly half of the time. Respondents reported that the lien search adds, on average, $300 to the final Phase I price tag. One benefit of this approach is that it avoids the EP having to document the lack of a liens search information from the client as a data gap in the analysis.

When an EP is contracted to undertake the lien search, he or she usually hires a title company or an environmental information vendor to conduct the research and provide documentation for review. During its research for recorded environmental cleanup liens and AULs, as required under AAI, the title search company taps into a variety of sources including land title records. Using client-supplied address and parcel number information, the title professional will search for the appropriate deed and any accompanying documents, review the findings, look for encumbrances on ownership (liens) or use (AULs), and then provide citations on sources along with copies of any encumbrances to the EP for review. (Trusted environmental information vendors rely on this same methodology.) Because sources can vary significantly by state, local expertise is critical.

If a lien is found, the search will yield information such as the date and dollar amount of the lien, the agency that placed the lien, and the state program name under which cleanup was conducted. (While most environmental consultants are not experienced enough to conduct lien searches, they are uniquely qualified to interpret the results. Often, liens and AULs are in the form of letters from a state environmental agency that uses language more familiar to an EP than a title professional.)

“Typically, we hire a vendor to perform the search and the report is a straightforward summary statement of findings,” says Alan Agadoni, an environmental professional with ATC Associates Inc.

Farshad Razmdjoo, R.E.A., an environmental professional with ENVIRON International Corporation, agrees. “The reports we buy [from an information vendor] are easy to read,” he says.

If the search fails to turn up a lien, the EP will receive equally valuable documentation that a lien search was indeed conducted.

Conclusion
Whether the EP or the user tackles the job, an environmental lien search must be conducted for AAI to be met. If the user decides to withhold the information, the EP must factor that into the overall inquiry as he or she would any other data gap. If EPs are given responsibility for this mandatory component, they can obtain pertinent information from a title company or information vendor by specifically requesting a lien/AUL search. From there, the issue simply requires an interpretation of the results—a task EPs are uniquely qualified to perform.

Links to EPA’s AAI Rule (40 CFR Part 312) and ASTM’s E 1527-05 standard, along with other relevant documents, can be found at www.edrnet.com/aai.

This article originally appeared in the 11/01/2007 issue of Environmental Protection.