Costly Cleanup: Buried oil tanks can break home sale deals


When Marianne and Matthew Schottenfeld began thinking of selling their Waldwick home in early 2009, a real estate agent advised them to remove the underground heating-oil tank.

“We thought it was going to be pretty painless and inexpensive,” Matthew said. “But the contractor discovered that the tank was corroded, and oil had leaked into the ground. It was downhill from there.”

The Schottenfelds’ property is completely clean now, but it took more than $60,000 and 2 1/2 years. Although their case is extreme, it illustrates the trouble these hidden tanks can create for homeowners, buyers and sellers.

“They’re very frightening things,” said Richard Kelly, an Oradell real estate lawyer.

There are an estimated 120,000 buried residential oil tanks in New Jersey, according to the New Jersey Fuel Merchants Association. That number has been shrinking as homeowners remove the tanks, either by replacing them with aboveground tanks or switching to natural-gas heat.

In many cases, a home sale forces the issue. Because of the tanks’ potential for pollution, most homebuyers demand they be removed before the deal can go forward.

“I haven’t had a buyer in years who accepts a house with a tank in the ground,” said Sheldon Neal, a Re/Max agent in Oradell.

“Many buyers will say right up front, ‘I want gas, I don’t want to look at oil,’ because of the perception that these tanks are a problem,” said Deborah Graske of Abbott & Caserta Realtors in Ho-Ho-Kus.

Mortgage lenders and homeowners’ insurance companies also are wary of underground tanks. As a result, many real estate agents advise sellers to deal with the tanks before they even put the house on the market.

Sellers don’t always know whether there’s an oil tank on the property because a previous owner may have abandoned the tank and switched to gas heat years earlier. If there’s a question, home inspectors often look for signs indicating there’s an abandoned tank on the property, like old pipes or oil feed lines in the house. Inspectors specializing in oil tanks are sometimes called in to sweep the property with a metal detector to search out an old tank and do test borings of the soil nearby to see if there are any leaks.

If a tank is found, removing it typically costs around $1,500 to $2,000 — if it’s not leaking. But if it has leaked oil, cleanup costs can run into the tens of thousands. That’s what happened to the Schottenfelds, whose tank leaked oil into their neighbor’s property as well as their own. Tests found that the leaks probably started 25 to 30 years ago.

Joe Solari, vice president of Aim Tank Services in Wayne, said that in his experience about 60 percent of removed tanks are leaky.

When a leak is discovered, the state Department of Environmental Protection must be alerted, and the cleanup process begins.

Insurance won’t necessarily take care of the cost. Homeowners’ policies in New Jersey generally won’t pay for oil damage to the homeowner’s property, although most cover damage to groundwater or a neighboring property, according to the state Department of Banking and Insurance.

Insurance companies try to limit their exposure to tanks. New Jersey Manufacturers Insurance Co., for example, will not cover liability for oil leaks unless the homeowner buys a special endorsement, which is offered only in the first year of coverage. And USAA won’t write a new homeowners’ policy for any property that has an underground tank, although it continues to renew policies on such properties.

Homeowners can get insurance through their oil companies, covering up to $100,000 in cleanup costs on the homeowner’s property. That insurance carries restrictions, including the requirement that if an underground tank is removed, the homeowner installs another tank and sticks with oil heat for at least a year, since the oil industry would like to keep the customers rather than see them switch to gas heat.

Jenni and Paul Harmon, newlyweds who recently bought a Cape Cod home in Waldwick, accepted an underground oil tank only because there was a $100,000 policy provided through the oil dealer. “It definitely gave us some peace of mind,” said Paul Harmon, a customer service supervisor. The Harmons, nonetheless, plan to remove the underground tank within a few years.

Other buyers just want the tanks out immediately. “Even if there’s insurance on the tank, maybe half of buyers just look to get rid of it,” said Barbara Weismann, a real estate agent with Weichert in Tenafly.

Some homeowners, especially in the past, have dealt with unneeded underground tanks by having them cut open, drained of oil and filled with sand or foam — a process called decommissioning or abandoning in place. In those cases, the town typically inspects the tank and issues documents saying the tank abandonment was properly handled.

But these days, the state DEP strongly advises that tanks be removed rather than abandoned.

“When you don’t remove them from the ground, it’s pretty hard to determine if there’s a hole in there,” said Gary Sanderson, coordinator of the DEP’s residential tank program.

In fact, if you abandon a tank in place, you may find yourself paying a second time to have it removed later because many home buyers are asking that previously decommissioned tanks be taken out. That’s what Kelly advises buyers to do because he’s seen several cases where a tank leaked oil into the ground, even though it was apparently decommissioned properly.

Martin Fong and his wife, Elisa, recently found a Leonia house they liked but discovered it was heated by oil, with an underground tank still in use. Though tests suggested the tank was not leaking, the Fongs wanted it out.

“We definitely wouldn’t want to get into a situation where we would have to be responsible for a cleanup and all these other headaches,” said Fong, a finance professional.

The sellers provided a credit to pay for the tank removal and agreed to be liable for any clean-up costs. The Fongs converted to gas heat in September. To their relief, after the tank was removed, no oil was found in the ground.

Celia Riggio, a real estate agent with Terrie O’Connor Realtors in Wyckoff, said an underground oil tank recently held up the sale of a three-bedroom Hillsdale ranch. The home was in “a wonderful neighborhood” and attracted a lot of attention from potential buyers, she said. But all balked at the oil tank, even after the seller offered a credit for the cost of removing the tank and converting to gas heat.

The home sold only after the sellers took care of the tank and the conversion to gas themselves.

“Although we knew the oil tank would be an obstacle, we underestimated just how big an obstacle it would prove to be,” Riggio said. “I would advise any homeowner with an oil tank to convert to gas, if natural gas is an option, before putting their home on the market.”

Kelly said he advises buyers not to just accept a credit for the removal of an oil tank, because if there’s a leak, the cost can be much more than expected.

“You don’t know what you’re assuming,” he said.

If a leak is discovered, the state advises homeowners to find a clean-up contractor on the DEP’s list of certified companies, which can be found on the DEP’s website. As with all home projects, homeowners should get several bids and check references before hiring a company, the DEP said.

The cost of cleanup depends on how extensive the contamination is, and whether the oil got into the groundwater. Costs range from about $8,000 to more than $100,000 for major leaks, though the DEP says $15,000 to $20,000 is a more typical range.

Once the cleanup is done, the contractor sends a report to the DEP (and the homeowner sends in a $400 fee). If the DEP is satisfied, it issues a “no further action” letter, signaling that the property is free of contamination. The DEP issued about 2,600 “no further action” letters last year.

A state grant program may pay for part of the cost of a tank removal and cleanup, if a homeowner qualifies. To apply, you have to have income below $250,000 and net worth below $500,000 (not counting the primary residence and retirement plans.) Even if you meet those standards, you may not get a grant, because the state Economic Development Authority will make the decision based on your ability to pay.

Currently, there is a backlog of people waiting to get money from the program, and a homeowner who applies today may not get any money till 2014, the DEP says.

The Schottenfelds’ oil leak is now completely cleaned up, and they have a “no further action” letter from the DEP. Most of the Schottenfelds’ costs were covered by their homeowner’s insurance, because the damage to the neighbor’s property from the leaking tank triggered their liability coverage. But getting the claims paid was complicated, because the couple had switched insurance companies several times over the years, and they had to determine which policy was in force when the oil leaked.

In the end, the Schottenfelds expect their out-of-pocket costs to run about $10,000 to $15,000.

For more information:

Check, the state Department of Environmental Protection’s website on residential underground oil tanks. You can find a link to a list of contractors certified to remove the tanks.

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