Getting a mortgage with an underground oil tank is difficult, but not impossible. The existence of a underground oil tank and the resultant potential for pollution will be revealed during the home inspection. To go forward with the mortgage, and the sale itself, the environmental hazard must first be addressed.
Hazards of a Buried Oil Tank
A buried oil tank, referred to as and underground storage tank (UST) by the Environmental Protection Agency, is a tank and underground piping with at least 10 percent of its total volume located underground. Tanks built before the mid-1980s were made of bare steel, which is more likely to corrode over time. With the structure weakened, oil can leak out into soil and groundwater, making the property an environmental hazard.
Problems for the Lender
The presence of a UST on a collateral property is problematic for a mortgage lender. A lender grants a mortgage with the understanding that it will get the property if the borrower fails to repay his obligation. The loan is based on a percentage of the value of the property known as a loan-to-value (LTV) ratio. The presence of a UST and the subsequent potential for contamination can decrease the value of the property, making the loan essentially unsecured, which ultimately puts the lender at risk.
Environmental Site Assessment
Mortgage lenders will perform some form of environmental site assessment on the property before granting a mortgage. On many mortgages, this is a simple environmental records search to ascertain the existence of a UST. Other times, the lender will perform a Phase I Site Assessment, which is a detailed report of the environmental conditions of the property. Often, a Phase I will reveal not only the existence of a tank, but the potential for contamination.
Removing a UST
If a mortgage lender feels that the UST presents a risk for contamination, it will not move forward with the mortgage unless the tank is removed. Unfortunately, the process can be complicated. Once you find a contractor that has the equipment and experience to remove the oil tank, you need to obtain the necessary permits, which can run anywhere from $75 to $200 depending on your municipality. The contractor also has to determine if a backhoe can be used to remove the tank. If not, it will have to be dug by hand which can increase the cost. The good news is, once you have the permits squared away, it only takes three to four hours to remove the tank. With proof the tank is removed, the mortgage company will typically be comfortable moving forward.