Not sure if property has an oil tank Should I proceed with offer?

Question

I had a magnetometry survey (fancy name for an oil tank sweep) conducted at a property I am looking to purchase in Northern New Jersey. The scan detected an anomaly between the grass and driveway. While a metallic footprint consistent with a large metallic object present, the absence of a fill pipe or vent pipe necessitates the need to excavate the area with shovels. The seller is Fannie Mae and the seller's is not allowing to dig to find out whether its an oil tank or not. Also present is one Oil line in the basement that leads to the general area of the anomaly (apparently there should be two lines but only one is present). No other anomalies on the property exist. Last time the property was sold was in 2004. The town does not have any records of permits for the removal of an underground storage tank. Property has been in foreclosure since 2014.

The cost to remove an oil tank is ~$2,500 (quoted by the same environmental company that did the inspection above). The issue is to confirm if the soil is contaminated and the extent of the soil contamination. The seller is not allowing to dig the area. The property has probably $30,000 - $40,000 of in the money equity in its current condition.

Question to the more experience investors is whether I should do the deal or not? Also, is there any other way to find out if there is an oil tank or not? I discussed the possibility of a non-invasive scan but the environmental company suggests that's not going to help us here. The non invasive scan is only going to tell us that there is an anomaly there (which we already know) but not tell us why there is an anomaly and what really is there (septic, oil or dry well).

Any help will be much appreciated. I clearly understand no one will be providing legal advice. But if you folks were in my shoes, what would you do?

Thanks

John Lopez · Answer

Zain,

I work for an environmental firm.  Some of the work that we do involves assessing and remediating   underground storage tanks.  In some instances, the clean up could easily out pace the 30k to 40k in equity that you stated.

You have a couple more options on trying to evaluate if a tank is present.

1) If the property is old, you may be able to identify the presence of a tank on a sanborn map that you could correlate with the anomaly in the field.

2) use a utility probe rod or a hand auger to dig down to the tank and see if its there.

3) review old site plans to determine the presence of a tank

4) will the bank allow you to just collect soil and/or groundwater samples adjacent to the tank in lieu of digging it up?

5) You said the "town" does not have any records, but USTs are typically a state matter.  You should check with NJDEP.

I can understand your frustration with having to deal with an this "anomaly", those survey contractors are wonderfully generic.

Let me know if I can be of any additional assistance.

Kelly Arthur · Answer

@Zain Bhayani I'm currently going through this with a multifamily I'm purchasing in West Orange. I told seller I would not go to close until the tank was removed, remediation completed and a "No Further Action" letter from NJDEP obtained. He agreed since he would either have to do this with me or another buyer.  The total cost was about $13K (tank removal, testing, permits and remediation)

Prior to the soil testing, I was able to go to the city and obtain the open and closed permits that showed that the tank had been filled with sand.

I think if I had known there was tank when I entered the transaction, I probably would not have made the offer on the house but I'm glad I did and even happier that they agreed to take care of the issue.

Let us know what you decide to do.

Kelly

Zain B. · Answer

All,

Thanks for all of your efforts to help out on this deal. Long story short, I ended up wasting $200 on an environmental scan and another $250 for my attorney only to find out about a incompetent agent not willing to do his / her job. I did learn throughout the process so not bad from an investment perspective. Thanks again.

Jay Hinrichs · Answer

if they are not allowing you to dig it up that pretty much answers your question.. if worse case is 10k and your have 40k in the deal.. as tight as deals are well then maybe you just go for it right?

Zain B. · Answer

@Stephen Masek I am sure that the environment company that I hired did not review the permit files. I will call them and find out tomorrow. The consultant did not review the government databases either. I as told to contact the city to see if they had any permits on file. I understand that the biggest liability is the possibility that the tank leaked into the groundwater extending beyond my properties boundaries. Fortunately, this property was last sold in 2004 and I am assuming that if this property had oil which was leaking into the groundwater supply, the city would have notified Fannie to remidiate the issue right away. Property has been sitting on the market for the last three years.

Zain B. · Answer

@John Lopez, thanks for an insightful response. I agree with you that if there is clean up and it leads to an area beneath the structure of the property, tthan the clean up could be much more than the amount of equity in the deal. I proposed to Fannie to dig up the area with the anomaly, if there is a tank to remove it at my own dime and still purchase the property as long as the area is not contaminated. Which I thought was a no brainer. The seller's agent responds with "you cannot touch the soil".

To answer some of your questions:

1. Property was built in 1955. How do I get access to a sanborn map?

2. I will ask the environmental company to see if this is possible? Again, the seller does not want me to touch the soil which is ridiculous

3. Where can I get access to old site plans?

4. This is a solid idea, I will talk to the bank tomorrow morning.

5.I will check with NJDEP tomorrow. I was told that the town should have permits if the oil tank was removed but as @Kelly Arthur stated its really NJDEP that I need to call.   Thanks for the insights. Please share any further insights you may have that will help me through this process.

Stephen Masek · Answer

I'm president of an environmental consulting Corp.  Did you examine the building permit files?  They may show the tank location.  Did you obtain  a Phase I Environmental Site Assessment?  If so, the consultant should have examined the building permit files, and ordered and reviewed a search of government databases.  The potential liability includes the possibility that the tank leaked into groundwater, perhaps groundwater extending beyond the subject property boundary.   How large is the building and how large is/was the tank?

Zain B. · Answer

@Kelly Arthur thanks for sharing your experience. Looks like things worked out for you. Did you buy from a private entity? Whom did the seller use to remediate the issue? I am dealing with Fannie Mae and its a pain the A** to get them to do anything. I even volunteered to soil conduct the test to find out if its an oil tank or just a abandoned septic tank but the seller will not work with me here. They do not want me to dig at all which leads me to believe that (1) they either know more than I do or (2) the agent has no interest in selling the property as I am sure he/she collects property maintenance fees. In either case, I think I am going to back away from the contract since my lender will not finance without knowing what's underneath the ground. Just a big waste of time and money. Glad you were able to work your issue out.

Not sure if property has an oil tank Should I proceed with offer?

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