On July 29, 2011, Governor Cuomo signed a law authorizing local governments to create not-for-profit corporations to act as land banks with respect to vacant, abandoned, or tax-foreclosed property. These non-profit land banks will have the ability to sell property free and clear of prior tax liens. However, the new law does not insulate these newly created non-profits from liability for site contamination.
Newly created land banks will need to exercise caution in acquiring abandoned and foreclosed property, which are often contaminated from historic industrial activity. Such contamination may have been a factor contributing to the abandonment of the property, particularly in economically depressed areas. Federal and state laws can impose strict liability on owners of contaminated property to address the actual or potential release of hazardous substances. Although these laws provide a defense to government entities acquiring property involuntarily or through eminent domain, such defenses do not appear to be available to a land bank. Land banks would be well advised to consider this risk and to protect themselves by conducting due diligence investigations before taking title (in order to qualify for certain statutory defenses to liability) or by delaying taking title until a developer or other entity has been identified with the financial capacity and willingness to assume environment liability for past contamination.