While banks are generally protected under federal law from having to pay for environmental cleanup on indebted properties, they can incur liability if loan documents are not properly executed or if they get too involved in operational oversight.

David J. Armstrong, a Ballard Spahr attorney in Phoenix who counsels clients on environmental risks and liabilities in corporate and real estate transactions and regulatory compliance, noted that lenders should avoid becoming too involved in operations. Although lenders have a secured creditor exemption under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), he noted that participation in the management hazardous substances practices of a property or routine operations could negate that protection.

He also noted that there may be different requirements for protection from violations under other laws such as the Clean Air Act or Clean Water Act.

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