Why does my bank want a Phase I ESA?
When purchasing or refinancing a property, many people have questions about the Phase I and Phase II ESA situation. A general question people wonder about is why their bank is demanding a Phase I, or in sometimes, a Phase II ESA on a particular property.
If this wasn’t thoroughly explained to you by your bank or lending institution, or you aren’t completely certain what a Phase I ESA is, or if you wonder why a bank may require a Phase I or Phase II ESA, you’ll find some answers here. Just remember that Lougheed Engineering a bank – so you should really have your bank give you the final answer. We’ll discuss what the experts in the financial field usually say when it comes to Phase I work.
Why do banks require a Phase I or Phase II Environmental Site Assessment?
The brief answer is because you’re are borrowing their money, and they need to limit their risk. If you don’t follow their requirements, they probably will not lend you the money.
Let’s consider that for a minute. If you want to finance (or refinance) property, you will need money. To get the money, you use some type of lending institution, such as a bank, and ask for a loan. That loan comes with conditions, and some of those conditions are in place to protect the bank. A Phase I ESA is a tool that shields the bank in case the property is found to be contaminated. Why? Because contaminated properties need to be cleaned up, and cleaning up contamination is costly!
The bank wants you to get a Phase I so that they are certain you are not buying a contaminated property. If you are, and the Phase I ESA indicates that there might be contamination on the property, then the bank probably will ask for more information about the contamination. This further inquire is typically in the form of a Phase II ESA.