Yikes. Did you know that Indiana has a set of regulations that deal with the cleanup of properties contaminated by the manufacture of illegal drugs? Did you know that, for instance, an innocent buyer at a sheriff's sale arguably could be compelled by the State of Indiana to cleanup a house previously utilized as a meth lab?
The Law. Title 410 of the Indiana Administrative Code, Article 38, entitled Inspection and Cleanup of Property Contaminated with Chemicals Used in the Illegal Manufacture of Controlled Substance, governs this matter. Even though the regulation never mentions mortgage foreclosures or sheriff's sales, a handful of key provisions point to the idea that even a totally innocent buyer at a sale, with no prior knowledge of any contamination, could be required to pay for a cleanup before either living in the house or, perhaps more on point here, liquidating the post-foreclosure. 410 IAC 39-2-18-1 defines "owner" as "a person having an ownership interest in the contaminated property." 410 IAC 38-3-2 goes on to require the owner to cleanup the property before occupying it or "transferring any interest in the property to another person."
The Impact. Other than a client once asking me to interpret the law, admittedly I've never had to litigate this issue, nor have I been involved in a dispute with the State surrounding the law's applicability. Nevertheless, it seems to me that residential mortgage loan servicers should be aware of these rules in the event they learn, either pre or post-sheriff's sale, that they service a mortgage on a house contaminated by the manufacture of illegal drugs (i.e. a meth lab). By foreclosing on a meth lab, the lender/mortgagee could end up with an expensive mess on its hands.
The Rub. The potential exposure to cleanup liability is similar to the environmental exposure discussed in my 9/24/09 post Always Consider An Environmental Liability Analysis, geared more toward commercial foreclosures. (See also, Real Estate Appraisals Are Important, But Not Required, In Indiana Foreclosures.) One difference between the environmental topic I previously discussed and today's subject is that it may be difficult if not impossible for a foreclosing lender or a sheriff's sale buyer to know about a meth lab before the sheriff's sale. Ideally, a foreclosing mortgagee or potential buyer would inspect the interior of the house before any sale, but that's not always possible absent consent by the owner/mortgagor or perhaps a clear abandonment by the occupant.
More Info. I understand that the State agency that oversees these matters is the Indiana State Department of Health, Environmental Public Health Division. For details about the State's program, the Division's website has a plethora of information. Start by clicking here, but note the "Cleanup and Inspection of Illegal Drug Labs" button on the left side of the home page.