Environmental Assessments for HUD 232 Loans

An Environmental Assessment is one of the most important third-party reports that a borrower must submit to HUD during the HUD 232 loan approval process. Environmental Assessments are designed to make sure that a property is following all relevant state, local, and federal environmental regulations, as well as to make sure that a project doesn’t contain any hazardous materials that could impact the health of current and future residents, as well as the surrounding environment.

In most cases, a project will only require a Phase I Environmental Assessment; however, if a project is found to have hazardous substances or other dangerous materials, it may require a Phase II Environmental Assessment, which requires an assessor to take physical samples from the property and submit them for lab testing.

How Does a Phase I Environmental Assessment Work?

A Phase I Environmental Assessment, also known as a Phase I ESA, is an assessment based on EPA standards, as well as standards developed by the American Society of Testing and Materials (ASTM.) Througout a Phase I ESA, a qualified environmental assessor will examine a property for elements including:

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  • Radon 

  • Pesticides

  • Asbestos

  • Dangerous chemicals

  • Lead-based paints 

  • Petroleum products 

  • Unsafe structural components 

  • Mold 

To ensure that their report is as thorough as possible, the environmental assessor may interview past owners, current tenants, and building managers to learn more about the history of the site and any risks that they may not be aware of. In addition, the assessor may also examine state and local records to determine if they have any evidence of issues like chemical spills, asbestos poisoning, or environmental liens being placed against the property.

Phase I ESAs often take around a month to finish, and are valid for a 6 months after the testing is complete. However, Phase I ESAs that are less than 1 year old can be used to speed up a new Phase I ESA, which can save borrowers significant time and money. 

When is a Phase II Environmental Assessment Needed?

If a Phase I ESA has detected evidence of an environmental hazard on the site, a Phase II Environmental Assessment will often be required. This usually requires an assessor to collect physical samples for later testing. Phase II ESAs often involve taking soil samples, indoor air samples, and groundwater samples. In some cases, a Phase II ESA may also require the installation of a monitoring well, and sampling for specific hazards, like mold or lead.