B4-2.1-06, Remedial Actions for Environmental Hazard Assessments Below Standards (06/03/2020)

When an environmental hazard has been fully remediated, the hazard no longer poses any risks for future use of the land or structures or the need for ongoing activities to ensure human health and safety. Some hazards result in ongoing risks that require continual mitigation strategies to minimize potential harm. The environmental hazard is considered mitigated when those strategies sufficiently minimize the current and future risks to human health and safety.

If the hazard will never be fully remediated but the impacts have been sufficiently mitigated to satisfy applicable regulatory standards, the site may be deemed suitable and safe for residential use. The lender has the delegation to review the environmental hazard and its mitigation plan to determine if the project meets Fannie Mae’s requirements.

Properties that fail to meet a particular standard may be corrected through remedial actions and then retested. Remedial actions must be undertaken with the advice and written endorsement of a qualified environmental consultant. All remedial actions must be taken in accordance with all regulatory and good management standards.

Typically, lenders must confirm the completion and effectiveness of remedial actions based on the following conditions:

• A qualified environmental consultant states in writing that remedial work needed to make the property eligible under the environmental standards can be completed within 90 days.

• The project’s developer or sponsor signs a contract with a qualified firm to perform the remedial work within 90 days.

The lender must warrant that the job has been satisfactorily completed and the property meets Fannie Mae’s environmental eligibility standards.

If the property is not remediated at the time of project approval, the project developer or sponsor must provide a performance escrow equal to 150% of the gross contract amount to ensure the completion of the remedial work. Loans securing units in the project cannot be sold to Fannie Mae before completion of the remediation.

Some jurisdictions or government agencies will issue a “no further action” notice (or letter) to alert the public that all available remediation steps for an environment hazard have been completed. A “no further action” status for a specific environmental hazard may indicate that

• the hazard has been fully remediated and the site is suitable for residential development,

• all applicable remediation actions have been taken but the site is not suitable for any type of development, or

• other variations between these two opposing outcomes.

Due to the variation of what a “no further action” status means, lenders cannot rely solely on that status to determine if the environmental hazard has been sufficiently resolved. For the project to meet Fannie Mae’s requirements, lenders must determine if the specific “no further action” condition has been sufficiently resolved.

Lenders must follow Fannie Mae’s appraisal and notification requirements for environmental hazards in B4-1.4-08, Environmental Hazards Appraisal RequirementsB4-1.4-08, Environmental Hazards Appraisal Requirements, any time the subject property is impacted by an environmental hazard.