Q: Can a Mortgage Holder Qualify for Brownfields Tax Credits?
A: A sale where the seller “holds the paper” – in other words, sells the property to a buyer for no money down or a small deposit, with the balance of the selling price converted to a mortgage on the site is a common occurrence in the real estate industry, particularly with a contaminated property.
This type of sale may be the best option when the site has known contamination that prevents a buyer from obtaining traditional bank financing, as many lenders shy away from extending loans on contaminated properties prior to receiving a Permanent Solution (colloquially known as a No Further Action letter) from a Licensed Site Professional (LSP). Many times, a property owner may have conducted initial response actions to clean the site but desires a sale prior to completing the work. Often, the deal stipulates that the seller will remain responsible for finishing the work, followed by a bank loan to pay off the private mortgage.
In this scenario, the question arises as to whether the seller may file for a state Brownfields Tax Credit upon reaching a Permanent Solution. The Massachusetts Department of Revenue (DOR) has advised Cooperstown Environmental that in such a scenario the seller generally cannot qualify for tax credits because he was no longer the owner when a Permanent Solution was reached. The party must be the owner or a lessee, and a mortgage holder does not qualify. Therefore, in the scenario set forth here, the seller could maintain eligibility by entering into a lease with the new owner for the duration of the cleanup work.
“Ask Mr. Brownfield” is a regular column regarding the highly-acclaimed Massachusetts tax credit program for reimbursements of environmental expenses. Jim Curtis is an acknowledged expert with more than 15 years of industry-leading experience and knowledge; Cooperstown Environmental LLC of Andover has completed hundreds of successful applications for its clients.