Last week, the Tennessee Department of Environment and Conservation (“TDEC”) issued its new Construction General Stormwater Permit, which will impact a sector that is generally not subject to environmental regulations. Under the new permit, if a lending institution obtains ownership of a construction site by foreclosure, TDEC now requires that institution to obtain stormwater permit coverage even if the property was covered under a valid permit prior to foreclosure.

This requirement arises as a direct result of the real estate market’s toll on construction projects that have been halted or postponed by the current economic downturn. As lenders well know, these properties often go into foreclosure and sit without activity for months or even years. At many of these construction sites, grading of the land has occurred, and the soil is unstable and exposed to rain, thereby potentially causing degradation to local streams and waterways as a result of stormwater erosion. As the regulating entity for water quality, TDEC has set its sights on these construction sites.

Specifically with regard to foreclosures, the new permit states...