Question

King Textile Company (KMC) got a mortgage from Thrifty Southern Bank (TSB) to purchase a new textile manufacturing facility. KMC dumped excess chemicals from the process in a man-made pond behind the building. This practice contaminated the property. If KMC was successfully sued by citizens who were affected by the fumes from the chemical dump and thereafter fell behind on their payments to TSB, which then foreclosed on the mortgage and took the factory property, would TSB be liable for cleanup costs of the contaminated land?

Multiple Choice

a. No, because it was an innocent landowner.
b. No, because it did not contaminate the property.
c. No, because it was a secured creditor.
d. Yes, because it owns the property.

Answer 1

If TSB forecloses on the mortgage and takes possession of the contaminated property, they would not be liable for cleanup costs as an innocent landowner and secured creditor. Option a is the correct answer.

Step-by-step explanation:

If King Textile Company (KMC) was successfully sued by citizens who were affected by the fumes from the chemical dump and thereafter fell behind on their payments to Thrifty Southern Bank (TSB), the bank may foreclose on the mortgage and take possession of the factory property. In this case, TSB would not be liable for the cleanup costs of the contaminated land for several reasons. First, TSB can claim the defense of innocent landowner, as it did not directly contribute to the contamination. Second, TSB can argue that it was a secured creditor and therefore not responsible for the environmental cleanup. Lastly, TSB acquiring ownership of the property does not automatically make them liable for the contamination.