This post is a summary of my presentation at the Environmental Bankers Association meeting this January on the subject of environmental due diligence during SBA foreclosures.   Everyone is doing environmental due diligence for new loans to meet SBA’s SOP 50-10 guidelines.  Well what about if you are doing a pre-foreclosure due diligence?  Are consultants to follow the new SOP 50-10 or the dated standard for foreclosures SOP 50-51.    Technically speaking, banks and consultants should follow SBA SOP 50-51 Loan Liquidation and Acqired Property. 

What does SOP 50-51 say?   The standard recommends that lenders use extreme caution in taking title to environmentally impacted property, however, the process that is then laid out is very general and not very prescriptive.  

First, the lender should complete the environmental questionnaire from the SOP 50-10 Standard, then based on the questionnaire, the lender is to make a decision whether there is a potential that the site has hazardous materials or is contaminated.   If yes, a Phase I Environmental Site Assessment is required.   If the Phase I recommends a Phase II then, of course, a Phase II Subsurface Investigation should be completed. 

 Simple enough and effective if the bank and consultant use good judgment. 

By the way, the SBA is in the process of re-writing the SOP 50-51 standard.  The standard will move towards SBA SOP 50-10, but may not have some of the limited assessment features.   The person authoring the new standard is Steve O’Lear and he can be reached at stephen.olear@sba.gov, if you want to give him comments.