Toxic Mold: A Growing Problem
Nobody Knows the Truffles I've Seen
by Robert Klein
Safeguard Properties
USFN Associate Member

Mold in dwellings and other buildings has been an ongoing problem and is naturally an important consideration when preserving property for servicers and investors. Recently, however, growing concern over the presence of toxic, black mold has resulted in lawsuits being filed and nationwide media attention, thus paving the way for some changes in the claims and legislative arena. Before exploring the ramifications of toxic, black mold to the mortgage servicing industry, let us briefly review what it actually is and what causes it.

Black mold refers to a variety of fungi that thrive in humid, high-moisture environments, and have been linked to a number of physical ailments in both humans and animals. The most notorious of the black molds - Stachybotrys chartarum (SC), also known as Stachybotrys atra - is a greenish-black fungus that grows on high-cellulose materials such as wood, paper, cardboard, and sheetrock that are continuously exposed to water damage and high humidity. This is NOT the common mold found in showers. Leaks from roofs, plumbing, sewer lines and flooding are prime causes for the kind of continuous water exposure leading to the mold growth. If unchecked, water damage and subsequent mold growth can lead to dry rot and extensive structural damage. In addition, the presence of the mold can also be a potential health hazard.

Under certain environmental conditions, SC can produce mycotoxins, i.e., toxic chemicals. These mycotoxins, which are present on the spores, can become airborne and inhaled when the mold dies and dries up. The possible presence of SC-spawned mycotoxins has been suspected as the cause of some illnesses and has been the subject of a growing number of lawsuits and legislative actions in several states. Farmers Insurance Group has estimated that mold claims will cost them in excess of $85 million in 2001. The June issue of Lloyd's Insurance Today reported that the rise of toxic mold claims in the United States would increase homeowners' premiums 10 percent by late 2001.

Due to the growing health concern, pending litigation and legislation, servicers and insurers of foreclosed properties have begun requiring specialized reporting from and removal of mold by environmental experts. These experts are not cheap, utilization of which can increase property preservation costs by hundreds - if not thousands - of dollars.

Mere removal of the mold, however, is not the end the problem. The presence of mold is evidence of either a leak, excessive condensation, or flooding, so it is imperative that the cause of this condition be repaired or the mold will return. From a property preservation standpoint, it is important to regularly inspect properties for mold, especially after periods of inclement weather. If mold is found, it needs to be identified as to type and removed. Any conditions that led to its growth need to be rectified at this time to prevent the mold from returning. If the mold has caused dry rot, it is important to identify the extent, remove and repair the damage.

Most homeowners' policies will cover mold claims if the mold is the result of a covered loss, e.g., broken pipes, roof leaks. There is talk of creating a "mold exclusion" for future homeowners' policies, but pending legislation and the outcome of current litigation may prevent this. Due to insurers' recent acknowledgement of responsibility to remediate mold conditions where there is a covered loss, any denials by carriers of such claims should be carefully reviewed.

While most property preservation contractors are trained to identify whether mold conditions exist at a property, proper remediation may require the attention of an industrial hygienist and environmental specialist. In some cases, costs for testing by an industrial hygienist may range from $3,000 to $6,000, with costs for non-restorative remediation ranging from $10,000 to $30,000.

Proceeding with prudence is advised - without overreacting. Certainly the mortgage banking industry needs to stay abreast of the issue and to monitor the outcome of pending legal actions. Procedures outlining the removal of black mold may be found at the following Web sites: www.insure.com/home/mold.html, www.epa.gov, and www.inspectny.com.sickhouse. For updates on pending litigation or legislation relating to black mold, visit www.moldupdate.com and www.leginfo.ca.gov. Detailed articles on mold may be found at www.newslettersonline.com.