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Special Assets Services

The Special Assets Department (SAD) or Bank Workout Group, is a department within a bank that handles business loans and other types of financing that are in trouble. When a borrower is deemed too risky for an ordinary business relationship, SAD’s intention is to collect on the loan and remove the troubled client from the lender’s portfolio. A loan / line of credit in default can have three outcomes—return to good standing, be modified, or the property / asset is repossessed or sold via foreclosure or voluntary surrender. If a borrower cannot meet goals laid out in a specific timeframe, the lender will begin foreclosure to recover losses. Generally, federal law prohibits a lender from starting foreclosure until the borrower is more than 120 days past due.

 

During the “Great Financial Crisis of 2008 (GFC)” Sierra Delta Consultants LLC (“SDC”) custom tailored existing environmental due diligence products and initiated many new services customized to client needs and time requirements.  All the services / products are offered under the umbrella of SDC’s Error and Omissions Insurance.  Examples of SDC’s products / services would include:

Investigations Outside the Normal Scope of Policy and Procedure Manuals

SDC learned during the GFC that many of our banking clients in the appraisal of properties and foreclosure action required services outside the normal scope of services provided by conventional environmental due diligence companies.  Since 1985, SDC has offered the following services:

 

  • Archaeology 

  • Asbestos / lead / mold mildew

  • Biological studies (Rare and Threatened Endangered Species)

  • Demolition investigations

  • Geologic hazards

  • Noise Investigations

  • Surface and groundwater hydrology 

  • Underground Storage Tank (UST) state cleanup fund status

  • Unregulated concerns of agricultural lands

    • Aboveground Storage Tanks (ASTs) / Underground Storage Tanks (USTs)

    • Chemical prep and application

    • Historical events 

      • Natural disasters

      • Man-made disasters

  • Water rights​

  • Well tests / water quality

  • Wetlands

  • Zoning code violations 

Environmental Due Diligence for SBA Lenders

 

SBA Lenders must conduct an Environmental Investigation before taking any Loan Action that could result in a loss, or increase the risk of loss, due to the actual or alleged presence of Contamination.  SDC can assist lenders in complying with the SBA policy and procedures outlined in the SOP 50 57.

 

Real Estate and Agency Compliance Reports

Property Status Report – A SDC representative will visit the property to give a status of the subject property, as well as contiguous properties.  Items included would be:

  • General condition / housekeeping

  • On-site security

  • Signs of theft or vandalism

  • Present use

  • Photographs

  • Client requested information

Agency Compliance Inquiries – A customized report guided by the client’s needs.  Examples would be the status of operating permits, annual / biannual inspections, unresolved compliance issues, monitoring / remediation programs, building / zoning permits and issues, etc.  SDC’s professionals are versed in consulting with governmental agencies, regardless of department, to assist in the detailing of problem areas and their associated costs / time requirements to rectify.

Environmental Due Diligence Reports

SDC has been producing environmental due diligence products since 1985.  Over that period, the firm has grown and has conducted investigations in all fifty states for numerous clients in virtually all land use categories (residential, commercial, agricultural, natural resource and industrial).  Because of our experience we can assist our clients in designating a due diligence strategy to get answers needed in a timely and cost-effective manner without sacrificing attention to detail.  We work for our clients in our area of expertise as part of their Special Assets team.  Below are the environmental due diligence products normally offered by our firm, however, we are accustomed to customizing these products, modifying and streamlining them for our Special Assets clients.

 

Record Search / Risk Assessment - A Records Search with Risk Assessment (RSRA) is an environmental due diligence report for SBA loans. It provides a faster, less expensive way to assess environmental risk for a site with no known environmental issues. 

 

Transaction Screen Assessment - A Transaction Screen Assessment (TSA) is a form of environmental due diligence which is less comprehensive than a Phase 1 ESA but more comprehensive than a Record Search with Risk Assessment (RSRA). Because it holds a middle ground, there are cost advantages in doing one.

 

Phase 1 Environmental Site Assessment - A Phase I Environmental Site Assessment (ESA) is an environmental report prepared according to the ASTM E1527-21 for individual properties that identifies either potential or existing environmental contamination liabilities. Such reports are generally considered to be the first step in the process of environmental due diligence. 

 

Limited Scope investigations - If a site is considered at risk for some degree of contamination ( a Recognized Environmental Condition), then a Limited Scope investigation may be conducted. Such second stage assessments involve actual site investigations, which may include soil / water sample collection and chemical testing, ground penetrating radar surveys, etc.  Should the results of the investigations determine contamination is present the client would be notified and consulted with to develop a strategy before notifying and consulting with local and state agencies.

 

Phase 2 Environmental Site Assessment – A Phase II-Environmental Site Assessment (ESA) is conducted in those cases where contamination has been discovered through a Limited Scope investigation.  The investigation is conducted in compliance with ASTM E1903-19 and involves coordination with local / state agencies to arrive at a reasonable scope of work and time frame to define the aerial extent and depth of the contamination and contamination concentrations.  These investigations can be expensive and consume considerable time due to having to coordinate with local and state agencies.

 

Options and Alternatives - For the property owner, environmental issues can drive a property into foreclosure for the reason that the costs of remediation and the amount owed on the mortgage can exceed the owner’s ability to pay for remediation, as well as retire the debt.  Likewise, environmental issues can represent a liability for the financial institution that impacts the decision-making process regarding foreclosure strategies.  SDC can assist decision makers by delineating options and alternatives in our area of expertise and experience that may allude the banking professional, thereby enhancing  the decision making process.

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