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A Real Estate Dilemma: What to do With Underground Oil Tanks

Underground oil tanks are still around. Advice on what buyers/sellers/owners might want to consider doing to protect themselves.

While there is no law against the transfer of property with an underground oil tank, it is increasingly difficult to do so — especially in a buyers' market!

Even properly decommissioned tanks run the risk of having leaked at some point in time. The cleanup of contaminated soil is the responsibility of the homeowner — regardless of when the leak occurred.

In other words, if you buy a house with an underground tank and a year later you pull the tank to convert to natural gas and there is a leak, then YOU are responsible for the cleanup. There will be no going back to the prior owner for help with the cleanup and there will be nobody to blame!

And the subject of underground fuel oil tanks is one that I run into more often than people might think. These are the kind of questions and comments I hear:

  • "My oil tank is underground and it has insurance; why do I need to remove it?" 
  • "I am negotiating a contract on a home with an underground tank, what do I need to know about it?" 
  • "There is a decommissioned tank in the back yard, all the permits are on file at the township office."
  • "Can we ask the seller to pay for the soil test?"
  • "We haven't had any problems with our tank, we are not going to take it out of the ground."

When I first started in real estate, the only thing I needed to know when selling a home with an oil tank was the number of a reputable inspection company. We held our breath during the tank inspection and exhaled when the soil reports came back clean.

Then, during a transaction on West Oak Street in Basking Ridge, we were days away from closing and my client (a first time home buyer) called me in tears: "I just got a call from my homeowners’ insurance company — they have a new policy against insuring homes with underground storage tanks." That was the beginning of the end!!

Then, about five years later, I had clients in attorney review for a purchase of a bank-owned property with an oil tank that had been properly decommissioned with permits back in 1997. While we were waiting to see if the bank would remove the tank, we did some research about homeowners insurance. And we learned that although a home with an underground storage tank is eligible for a standard homeowner’s insurance policy, that policy is with the stipulation that contamination issues will not be covered.

As a current homeowner with a tank, you may be grandfathered by your insurance company. But some companies, such as mine (N.J. Manufacturers), recently have sent communications to homeowners offering that a special rider be purchased to cover potential contamination issues. 

As a buyer, it is in your best interest to include a clause in the contract stipulating that the tank be removed. As a seller, it makes the most sense to remove the tank prior to listing the property.

Removing it before listing the house eliminates the issue completely. If you, as a seller, wait for a contract, you could hold yourself up waiting for soil test results.

While I don’t have any specific data around how many underground storage tanks still exist in Basking Ridge — decommissioned or active — I can tell you that I come across this issue very frequently.

I complete between 20 and 25 real estate deals a year and show many houses in the process. I’m willing to be that almost half of the homes that are (or had been) fueled by oil still have tanks underground (decommissioned or active). It is possible to not know if you have a tank. Sometimes it is possible to see where a tank may have fed into a house.

There is funding available from the state for removal costs as well as for costs associated with clean up. For more information on NJDEP funding, go online, or call 609-777-0101. Another resourceful website is the New Jersey Economic Development Authority.  (Under the "Applications" tab, click on "Underground Storage Tank Funding Programs.")

What else is happening with Basking Ridge real estate?

There have been 18 contract sales in town since the beginning of the year, and there have been 52 new listings as well since then.  The following properties closed during the month of January, comparing the listing and selling price:

23 Hadley Court; $834,900/$815,000

217 Irving Place; $244,900/$230,000

109 Woodward Lane; $319,000/$295,750

203 Alexandria Way; $224,900/$215,000

23 S Dexter Drive; $595,000/$575,000

196 Irving Place; $299,900/$298,000

1 Paine Court; $499,900/$495,000

251 Penns Way; $287,500/$282,250

54 Alexandria Way; $284,500/$275,000

20 Stacy Lane, $749,000/$720,000

441 King George Road; $639,000/$620,000

15 Tamarisk Court; $1,089,000/$999,000

3287 Valley Road; $699,990/$687,500

75 N. Maple Ave.; $525,000/$500,000

49 Spencer Road; $459,000/$465,000

347 Lyons Rd; $769,000/$725,000

14 Rockridge Court; $1,899,999/$1,845,000

378 Grist Mill Dr.; $1,085,000/$999,000

26 Alder Lane; $729,000/$685,000

The statistics published by the National Association of Realtors and Jeffrey Otteau indicate that although December contract sale numbers were down as compared with the same time last year, they weren’t down as far as they were when comparing December 2010 to December 2009. I absolutely believe that we are on the upswing.  It is going to take a while, but if you are a buyer looking for your “forever home,” it is a great time to buy!

AJY February 10, 2011 at 03:11 PM
Last year we sold a house in Basking Ridge with a functioning UST. The house was built in the 1940's and it was unclear how old the tank was. We had an tank insurance policy. Our homeowners insurance was through State Farm, who originally covered 3rd party damage when we bought the policy but that portion was dropped in 2005. In the meantime, our oil usage seemed normal, we upgraded to a more efficient system in 2004 and our oil dealer was confident that our tank was in good shape. In the process of selling our house last year, we realized that we needed to pull the tank and install new ones in our basement. I was completely shocked when our tank came out of the ground with a hole the size of a quarter. The tank was sitting in about a foot of water and the hole was below the water line! Things did not look good. Our tank insurance covered the soil remediation portion of the clean-up, but we had to pay out of pocket for the ground water clean-up. Fortunately things were not terrible. But much of Basking Ridge has a high water table due to the bedrock underground and then there is clay above that - this actually worked to our advantage because the clay may have served to plug our hole. The entire clean-up took about 2 1/2 months and then it took another month to get the all clear letter from the state. Our out of pocket expenses were approximately $15,000 - some of which should be reimbursed by the state.
Jennifer Blanchard February 10, 2011 at 03:44 PM
AJY, Thanks for adding your story! And the pictures too - that drives it home! Jen
AJY May 08, 2011 at 04:09 PM
I just wanted to add that I recently received a letter from Proguard that they are now offering 3rd party coverage and specifically ground water coverage. Proguard was the company that insured our oil tank.
Catherine August 09, 2012 at 03:48 AM
My fiancé and I put an offer on a home with an Underground Oil Tank. The property is a short sale and the bank will not do a thing... Any suggestions?
Jennifer Blanchard August 09, 2012 at 10:53 AM
Hi Catherine, My honest opinion - don't buy the property. There is no way to tell - without pulling the tank - if there is any deterioration. Once you own the property, you own the problem. The only way I would consider it is if the tank is insured with a transferable policy that covers 3rd parties, ground water AND soil remediation. The chances of a policy such as that being active and up to date on a short sale are slim. Even if you are getting a really good deal - which you probably are on a short sale - the cost of a remediation project can be in the tens of thousands of dollars or more. I would push the bank - though I just got short sale approval on a deal that's been in progress of over a year - I doubt you will get very far. I had a bank pull a tank once, but that was a foreclosed property not a short sale. In a short sale the bank doesn't own the property... Maybe the seller will pull it - but if they are in a short sale situation they probably don't have the money to pull the tank. A tank pull is about $1500 with additional costs if you need to put in a new tank or convert to gas. Let me know if you have any other questions. If you are working with a Realtor, he or she should be able to help too! Good luck!

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