MOLD IN THE HOME: HOW IT AFFECTS REALTORS®
February, 2002 By Jill Freudenwald Government
Affairs
NATIONAL ASSOCIATION OF REALTORS®
"Copyright National Association of REALTORS®,
Reprinted with permission."
(Article provided In full for your convenience)
Mold is the newest environmental scare grabbing the
public's attention. Although mold has always been present in
schools, homes and office buildings, it has not received the
nationwide attention that it is receiving today. Homeowners and
apartment residents across the country are filing lawsuits in
increasing numbers, claiming that indoor mold has harmed their
health. Because this issue keeps growing,
REALTORS® need to be aware of the concerns surrounding mold and
may need to take steps to protect themselves from liability.
While this paper is not meant to cover all aspects of the mold
issue, it will cover some of the key issues regarding mold -- what
mold is, how people are reacting to mold in their homes, how
government and industry are responding, and what the disclosure
responsibilities and liability of REALTORS® with regard to mold
may be.
WHAT IS
MOLD
Molds exist everywhere. They can be found both
indoors and outdoors. Molds move in and out through open doors and
windows, ventilation systems, and by attaching themselves to
people and animals. It is impossible to keep mold out of the
house. Molds occur naturally and are categorized as a fungus. As
part of nature's recycling system, which sustains plant and animal
life, molds assist nature by helping to break down dead material
in the environment. Numerous types of mold exist, but most are
harmless. In order to grow, mold needs moisture and an organic
food source. Food sources include clothing, wood, wallpaper,
paint, and carpet. As molds grow and reproduce, they release
spores into the air. When these spores settle on a damp surface
with a sufficient food source, the process is repeated.
Some molds have the ability to produce mycotoxin, a
toxic substance which may be harmful to a person's health.
Stachybotrys chartarum, an example of a toxic mold, has been the
subject of recent media stories. There is little scientific
research on how mold may affect a person's health. As scientists
already know, some molds are good, such as those used to make
penicillin. However, some people may be more sensitive to mold
than others, just as some people are more sensitive to dust, food,
or trees. In these people, allergic reactions such as sneezing,
itchy eyes, and coughing are possible. Although scientific
research on the relationship between mold and health problems is
inconclusive, some people have claimed that exposure to mold can
result in more serious health problems such as triggering asthma
attacks, memory loss, neurological problems or even death.
Because different people react in different ways to
mold exposure, it is difficult to determine how dangerous mold in
the home may be. For this reason, experts still do not know at
what level exposure to mold becomes a health risk in any given
instance. Currently, there are no established standards for
acceptable levels of indoor mold.
IN THE COURTS
In Delaware, two tenants sued their landlord for
failing to fix water leaks and cleaning up the resulting mold in
their apartment complex. The tenants claimed that exposure to
toxic mold caused their respiratory problems. During the time the
tenants lived in the complex, water leaks and mold were
reoccurring problems. Attempts by both of the tenants to remove
the mold by washing the moldy area with bleach failed. Although
various bathroom and kitchen water problems were reported to
management, the water damage was never completed cleared up. In
one of the apartments, water damage eventually caused the bathroom
ceiling to collapse, exposing an area covered with mold. One
tenant was awarded $1 million in damages, while the other tenant
received $40,000 for medical expenses and pain and suffering.
In Texas, a jury awarded an Austin family $32
million after finding that their insurance company failed to
adequately cover repairs and generally mishandled the home's mold
problem. In 1998, the homeowner found a leak in the bathroom and
had it repaired. However, months later, the home's hardwood floors
began buckling. An insurance company adjuster determined the cause
to be slab settling, a condition not covered under the homeowner's
policy. The homeowner's contractor recommended removing the
damaged sub-floor to prevent mold growth, but the insurance
company refused to pay for it. In addition to the bathroom, water
damage was also discovered in the kitchen. Eventually, the family
began experiencing health problems, such as dizziness and
respiratory problems. After many letters back and forth between
the family and the insurance company regarding coverage for the
water damage, an insurance investigator discovered mold behind the
refrigerator. The family has moved out of their home and plans to
demolish it.
In Arizona, a buyer is suing the listing agent
after finding mold growing in her recently purchased home. Prior
to closing, the seller offered the buyer an inspection report paid
for by a previous buyer. Although the buyer was being represented
by her own agent, the buyer's agent did not recommend an
additional inspection and no other inspection was done. After
purchasing the house, the buyer discovered mold while remodeling
the kitchen. The estimated cost of removal of the mold was $50,000
to $60,000. The buyer filed a claim, which her insurance company
denied on the grounds that the mold problem was a preexisting
condition. The seller contacted his insurance company, but was
also denied coverage. Now the buyer is suing the listing agent.
The case has not yet been settled.
In Pennsylvania, recent homebuyers are suing the
sellers and their real estate agency for failure to disclosure
water damage in the home. The $660,000 lawsuit claims that mold
from the water damage caused the buyers sever allergic reactions
requiring hospital treatment. As a result, the buyers have moved
out of the house while attempts are being made to clean it up.
Although the buyers claim that the sellers did not disclose the
extensive water damage, the sellers claim that the buyers declined
an environmental inspection. In addition, the buyers lived in the
house several weeks prior to settlement, which the sellers claim
gave them plenty of time to discover any problems. The case is
pending.
In California, a homeowner was awarded $18.5
million in damages from his insurance company when several water
pipes in his home burst during remodeling and resulted in mold.
Since the homeowner was not living in the home at the time of
remodeling, a leaking pipe in the attic went undetected for
several days. When his insurance company refused to cover all of
the damages, the homeowner sued. In Illinois, a former student has
sued her high school claiming that mold in the school caused her
health to deteriorate. The high school has been closed since April
2001, when toxic mold was discovered. Since that time, other
students have filed their own lawsuits or joined a class action
suit against the school. The school has conducted environmental
tests to determine the seriousness and type of mold in the school.
It has also spent $5.6 million for a new heating and ventilation
system.
THE RESPONSE
Insurance companies in Texas are being hit
especially hard with claims involving mold. In the past, insurance
companies would see one or two claims involving mold in a year.
Recently, the number has risen to thousands each year. While
policies in many states have specifically excluded mold, insurance
policies in Texas cover mold when it is the result of a covered
loss. Since the Texas verdict which awarded a family $32 million
in damages, Farmers, State Farm, and Allstate insurance companies
have limited or quit selling new policies in Texas that cover
water-related damages. Farmers also appealed to the Texas
Department of Insurance to allow Farmers to exclude mold coverage
from its existing policies. At a hearing held on October 16, 2001,
the Commissioner of the Texas Department of Insurance announced
that he would set up a task force to exam the issue of residential
property coverage for mold claims.
The Texas Association of REALTORS® (TAR) has
submitted a letter to the Commissioner of the Texas Department of
Insurance outlining its concerns with mold. TAR's position is that
the Texas Department of Insurance should require insurance
companies to continue to cover damage from mold in its residential
policies. In addition, TAR is compiling general information on
mold and making it available to its members, as well as beginning
an internal education campaign to inform members of the issues and
concerns regarding mold and how mold can affect property
transactions. TAR's Seller's Disclosure Notice now lists mold
under the question on environmental hazards. The question reads:
"Any repairs or treatment, other than routine maintenance, made to
the Property to eliminate environmental hazards such as asbestos,
radon, lead-based paint, urea-formaldehyde, or mold?"
Twice, the Texas legislature has passed legislation
to develop indoor air quality guidelines. In 1995, the Texas
Department of Health was charged with developing voluntary
guidelines for schools, effective May 1998. A more recent law,
effective September 1, 2001, expands the earlier law to require
the Department of Health to develop indoor air quality guidelines
for public buildings. Compliance with the guidelines is voluntary.
California has responded with a three-pronged
approach to the problem. "Mold" is now included on the
state-mandated Transfer Disclosure Statement which sellers must
complete in residential real estate transactions. In addition, the
California Department of Health Services has included a section on
mold in their Environmental Hazards Disclosure book. If a real
estate agent gives this book to a buyer "...a seller is not
required to provide additional information concerning, and the
information shall be deemed to be adequate to inform the
transferee regarding common environmental hazards, as described in
the booklet, that can affect real property." California Civil Code
Section 2019.7. Known defects must still be disclosed.
On October 7, 2001, mold legislation impacting
primarily landlords was signed into law in California. The Toxic
Mold Protection Act will impose new disclosure requirements on
landlords concerning mold for residential rentals, commercial and
industrial properties. It also requires the California Department
of Health Services to establish remediation guidelines and
inspection standards within a year and a half. The California
Association of REALTORS® worked closely with the legislature in
the development of this legislation.
The Arizona Association of REALTORS® is educating
its members about mold by distributing an information sheet from
the Arizona Department of Health Services. In addition, the
Association has added questions regarding mold and water damage to
its Seller Property Disclosure Statement and its Home Buyer's
Checklist.
A new law in Maryland will address exposure to mold
in office buildings. Enacted in April 2001, the law establishes a
task force on indoor air quality to make recommendations on
regulations protecting workers facing health and environmental
risks from toxic elements located in heating, ventilation and air
conditioning systems in office buildings. The task force will
focus on the nature, location and extent of risks resulting from
mold or other toxic organisms. A final report of the task force
findings and recommendations is due by July 1, 2002. The task
force began meeting in October 2001.
A resolution passed by the New Jersey Senate and
signed by the Governor provides state residents with information
regarding toxic mold. Adopted in May 2001, Senate Resolution 77
urges the Commissioner of Health and Senior Services and the
Commissioner of Community Affairs to provide information and
assistance to residents discovering stachybotrys mold regarding
identification of the mold, strategies for addressing the problem,
remediation, as well as investigating the health effects.
In North Dakota, federally subsidized homes on the
Turtle Mountain Indian Reservation are infested with mold, and as
a result, some will have to be destroyed. Tribal officials believe
the mold is causing health problems and may even have led to some
deaths. In response, the federal government approved $5 million in
emergency housing assistance to help address the mold problem on
the reservation.
WHAT SHOULD REAL ESTATE PROFESSIONALS DO?
There is little or no statutory, regulatory or case
law that expressly addresses the duties of real estate
professionals specifically related to mold concerns. In the
absence of explicit guidance regarding those duties and
obligations, real estate professionals should follow existing
requirements of state law relating to latent defects and
disclosure, including any particular requirements and standards of
care set forth by their state licensing authorities. Beyond the
requirements of law, real estate professionals may also, strictly
as a matter of prudence, wish to consider adopting practices
intended to help their clients and customers become aware of and
familiar with mold concerns, as follows: · Listing brokers,
buyers' representatives and even transaction brokers should
identify publications of the state or local departments of health
or other appropriate agencies, if any, for material explaining
this issue. While licensees are not microbiologists or mold
specialists, they can provide these public educational booklets as
a service to their clients and customers. In at least one state,
providing this booklet actually gives statutory protection from
some liability. ·
In some states licensees are required to conduct a
reasonably diligent visual inspection, and many licensees conduct
such an examination of the property even though not expressly
required by law to do so. Although it is not prudent for licensees
to opine on the cause of unusual property conditions they may have
observed, the conditions that licensees would normally note in the
course of a visual inspection may include some conditions that may
also lead to mold problems. Examples of such conditions are
obvious water stains, such as on carpets or walls, strong or musty
odors, leaky roofs or windows, plumbing leaks, overflow from sinks
and sewers, or even visible mold growth. A licensee should not
speculate whether or not these conditions may in fact indicate a
mold problem, however, since licensees are generally untrained in
such matters. As in any transaction sellers should be encouraged
to disclose any actual knowledge they may have of mold problems on
their properties, subject to any state disclosure requirements.
Most sellers will not know if their properties have mold problems.
If the seller is aware of a mold problem, the seller may elect to
ask a competent expert to determine the extent of mold present and
to recommend any corrective actions required. ·
To the extent publications or materials discussing
mold are available from local, state or Federal health or other
agencies, licensees may also find it to be a prudent and helpful
service to provide such information to clients and customers. Such
information should be provided in response to a buyer's expression
of concern about mold. As usual, when a licensee notes red flags
indicating the possibility of latent property defects, the buyer
should also be advised, in writing, that it may be prudent for him
or her to contact a qualified expert to inspect the property and
determine the nature of any problems and what options for
remediation exist. One state, however, recommends that air
sampling not even occur until further standards are developed.
Some purchase contracts available in some states already contain
such a written advisory to buyers that they should conduct
appropriate environmental investigations including any concerning
toxic mold. Armed with this information, the buyer can make an
informed decision regarding the purchase of a home that has or may
have mold concerns.
CONCLUSION
NAR will continue to work with EPA and other
federal entities as appropriate to ensure that federal efforts to
protect the public health are also fair and reasonable toward the
real estate industry. We will also continue to work with REALTORS®
and REALTOR associations to monitor legislative, regulatory and
judicial developments, disseminate updated information to the NAR
membership, and develop policy if necessary.
