A few months back I received a phone call from a colleague, a real estate lawyer in a rural Ohio county. She was preparing a title certificate, and the financing bank was asking her to certify that no environmental liens existed that would have priority over the bank’s mortgage. My colleague asked, “Where would I even look to find environmental liens? In the county recorder’s office? Or are they filed somewhere else?”
OK, I admit it—this topic is about as exciting as watching paint dry. But for reasons I will discuss in a moment, for those who guide clients in real estate acquisitions, it is essential to know where to find environmental liens reliably and efficiently. So where do you find them? For that matter—what is an environmental lien, and why should you care?
An environmental lien is a claim, encumbrance, or charge on real property for the benefit of a governmental entity (in Ohio, usually either U.S. EPA or Ohio EPA) pursuant to an environmental statute authorizing such liens. Normally, the lien is for the purpose of recovering environmental cleanup costs incurred by the government.
A variety of federal and state laws authorize environmental liens. For example, CERCLA section 107(I) states that all costs and damages relating to a release of hazardous substances constitute a lien in favor of the federal government against all property that (a) belongs to the liable person and (b) is subjected to or affected by the CERCLA cleanup. Notice of the lien must be filed either in the office designated by state law for filing of lien notices or, in the absence of a state-designated office, in the office of the clerk of the U.S. District Court for the district in which the subject property is located.
Ohio law also authorizes environmental liens for state government costs incurred, for example, in the course of cleaning up hazardous waste or scrap tires. These liens must be filed in the County Recorder’s office in the county in which the subject property is located.
Environmental liens can also arise out of lawsuits addressing environmental contamination. A court order may be converted to a lien on the property that was the subject of the court action. For Ohio property, the judgment lien is secured by filing a certificate of judgment in the office of the Clerk of Common Pleas Court in the county where the property is located. This process applies to federal judgments as well as judgments of Ohio state courts.
It is important to know where to locate environmental liens if you assist clients in the purchase, sale, or financing of real estate—particularly commercial or industrial real estate. Lenders and purchasers of real property routinely ask for representations that there are no environmental liens on the property in question. In addition, environmental lien checks are an essential part of environmental due diligence in commercial and industrial real estate transactions. Both the U.S. EPA regulations and ASTM Standards governing Phase I environmental site assessments require the user to search for environmental liens and “activity and use limitations” (“AULs”) that may be filed or recorded against the property in question. Absent such a search, the user can’t rely on the Phase I to establish defenses to CERCLA liability that are otherwise available to those who conduct “all appropriate inquiries” into the past ownership and uses of property that they purchase.
So where do you look? Answer: In the offices of the County Recorder and the Clerk of Common Pleas Court of the county where the property is located. Traditionally, the Clerks of the U.S. District Courts for the Northern and Southern Districts of Ohio have not maintained their own set of environmental lien records and will refer searchers to the county offices I just mentioned. I called both Clerks’ offices today (9/14/2015) and confirmed that this remains the case.
In the case of Phase I site assessments, don’t assume that a title examination supporting a Certificate of Title will specifically cover environmental liens and AULs. In my experience, some do not—resulting in a last-minute dash to the county offices to double-check before closing. In the interest of efficiency, it is best to coordinate early with the title examiner to make sure he or she will specifically look for environmental liens and AULs. In the alternative, many environmental consulting firms providing Phase I services will provide an environmental lien/AUL search for an additional fee. But just as with Certificates of Title, don’t assume the Phase I professional will conduct the lien search without clearly identifying that task in the work proposal. Under both the EPA rules and the ASTM standard, the lien search is an obligation of the user, not the environmental professional.
Best wishes for good hunting.