Environmental superliens and the problem of mortgage-backed securitization

Washington and Lee Law Review, Winter 2002 by Nash, Jonathan Remy

These features - the increase in money invested in real estate capital markets and the nationalization of the real estate capital market - reflect a more general phenomenon wrought largely by the growth of securitization: the integration of real estate capital markets with general capital markets. In general, this integration increased the flow of capital into the real estate markets.59 In particular, this integration has reduced home mortgage loan interest rates.60

2. Commercial Mortgage Lending

commercial mortgages.62 Indeed, no governmental or quasi-governmental agency or corporation serves to create and maintain a secondary market for commercial mortgage.63

Second, the terms of commercial mortgages vary far more greatly than do those of residential mortgages.64 The terms of residential mortgages are fairly standard on a national basis and generally vary only as to their terms and prices.65 Commercial mortgages, by contrast, exhibit distinctions that are far more numerous and greater in scope.66 Moreover, the absence of a national corporation with govemment ties has influenced the shape of the secondary market in commercial mortgages and on the underlying commercial mortgages themselves. In particular, there is less pressure to bring uniformity to the terms of commercial mortgages between states or even within regions.67 This lack of pressure to conform terms tends to preserve the broad variations in commercial lending.

Fourth, before the economic downturn ofthe late 1980s and early 1990s, commercial borrowers could readily obtain mortgage loans; they "enjoyed access to a deep capital pool with relaxed underwriting criteria."70 Until the 1990s, there was simply no strong pressure for the infusion of funds into, and the nationalization of, the commercial real estate market.

Despite these obstacles, a thriving secondary commercial mortgage market has arisen in recent years.71 Still, commercial mortgage securitizations lag far behind securitizations of residential mortgages.72

III. Overview of Environmental Superlien Stantues

A. The Superlien Statute

is determined under traditionally applicable rules of lien priority.75 Thus, a CERCLA lien will be superior to liens held by unsecured creditors and those filed subsequently76 but will remain inferior to pre-existing liens. Many state laws mimic CERCLA in this respect and also confer standard liens to state environmental agencies under analogous circumstances.77

agencies liens that are superior to all (or most) other liens regardless of when the competing liens were obtained or perfected.79

state, under these cir, will probably not recover much, if any, of its expenditures.80

A superlien statute changes this result. It gives a state the highest priority as to the post-cleanup equity in the property. This prioritization scheme greatly increases the chances that a state will recoup its cleanup expenditures.81

Because superlien statutes can give a state's lien priority over other lenders' liens even though the state's lien arose and was perfected later, these statutes are subject to various constitutional challenges.82 First, one can argue that the state procedures for obtaining and exercising a superlien deprives superior lienholders of property without the due process of law that is required by the Fourteenth Amendment.83 Indeed, the United States Court of Appeals for the First Circuit held in 1991 that the EPA had violated the Fifth Amendment's Due Process Clause when it obtained a CERCLA lien - of conventional priority - without affording the property owners notice of the lien and allowing for a predeprivation hearing.84 In fact, as I discuss below, several state superlien statutes do require the state to provide notice of the new lien to preexisting lienholders.85