REO Property with Oil Tank Strategy

[Derek Famulari]

Hey BP Family! 

I am hoping to pick your brains on a strategy when negotiating a deal with a REO property with an inactive, underground oil tank on the property.

Here is some background: The property is REO 2-Fam and located in NJ. The bank is only accepting offers for FHA 203K (SCORE!). The property, however, has a buried oil tank. The property is vacant for I don't know how long; and I have no idea whether the tank has been properly maintained.

Here is my issue: The property is REO - so the odds of me getting the bank to agree to remove or pay for the removal of the tank is slim to none (closer to none). Personally, I have no problem pulling the tank myself since this will be a 203k project (the entire home required a full rehab) and I can budget the removal into my rehab costs (Right now I am estimating $150k rehab). However, I don't know how costly the removal will be until I get the tank inspected; and if the tank is not sealed and clean up is required - a painless oil tank removal could potentially result in a $100k removal/clean up. If I experience the latter - this deal is dead and I have a nightmare on my hands.

Here are some thoughts/questions:

1. Since I am in NJ and we have that "lovely" attorney review period - would you suggest I try to get an oil tank inspector to check out the oil tank before we conclude attorney review, and if the tank is a deal killer - I can walk away clean?

2. Would a general inspection contingency in the contract cover an oil tank, and allow me to inspect after attorney review and still walk away if the removal is too costly?

3. Should I put a carve-out into the contract that should the removal exceed $10,000 (or some other number) - the contract is void?

4. Could I simply have my lender send me a mortgage denial letter due to the inactive oil tank (I have read that some banks and insurers won't mortgage or insure a home with an inactive oil tank)?

5. Any other ideas?

Ideally, I want to put as little contingencies into the contract since I am dealing with a bank, and they just want to be sure the home will sell.  

I feel as though this post can fit in quite a few other Forum Categories so if you know of one that I can find some additional input - feel free to suggest.

Thanks!