MOLD DISCLOSURE


Fungus: it can be mischievous and malevolent, or beneficial and benign. For example, certain types of fungus are essential for the creation of antibiotics and many things we consume from bread to beer. However, many believe that a type of fungus, mold, can be toxic to the human body if ingested or inhaled. Indoor Air Quality Info Sheet: Mold in My Home, What Do I Do, California Department of Health Services (June 2004) at 1. A particular strain of mold, Stachybotrys, can produce toxic compounds called mycotoxins, which have been blamed for causing health problems and have raised liability issues in residential home sales. Id. Yet, some experts believe that scientific research regarding the adverse effect of mold on humans in indoor environments has been unable to conclusively prove a causal link. Issue Paper: Mold, Mortgage Bankers Association (July 2004) at 2.


Mold grows in just about any place that is moist and has a food source. Indoor Air Quality Info Sheet, at 1. It feeds on cellulose products, such as paper, wood, insulation, dry wall, and even carpeting. This makes homeowners who have experienced any water leakage or flooding particularly concerned. Id.


For most people, the purchase of a house is the biggest investment they will make, an investment not only in a safe and comfortable place to live, but also one in future hopes and aspirations. A buyer's desire to have peace of mind in a newly purchased home can sometimes be at loggerheads with a real estate seller's goal to limit his or her own liability for defects in the property after the sale. In an effort to mediate between these conflicting interests, some states require sellers and real estate brokers to disclose material defects in the property about which they have actual knowledge before the sale.

Duty to Disclose Mold


The potential dangers of mold in inhabitable structures have caused an increase in litigation involving owners, insurers, real estate brokers, and sellers. See Coldwell Banker Residential Brokerage Co v Superior Court, 117 Cal App 4th 155 (Cal App Ct 2004) (action by buyer's son for illness caused by mold undisclosed by seller and broker against seller, broker, and insurance company). However, the seller's duty to disclose problems varies depending on the particular circumstances and on the applicable state's law. For example, in Illinois, a seller has a duty to the buyer to disclose known material defects in the property. See Provenzale v Forister, 18 Ill App 3d 869, 743 NE2d 676, 252 Ill Dec 808 (1st D 1974); Curtis Inv Firm v Schuch, 321 Ill App 3d 197, 746 NE2d 1233, 254 Ill Dec 185 (3rd D 2001) (applying the Residential Real Property Disclosure Act, 765 ILCS 77/1; see also, Hook v Bonner, 265 Wis 2d 938, 664 NW2d 683 (Wis App Ct 2003) (relying on the Restatement (Second) of Torts Section 353 (1965)). In contrast, however, Indiana courts have held that the seller's duty to disclose a defect arises only when the buyer makes inquiries to the seller concerning that defect. See Fimbel v DeClark, 695 NE2d 125, 128 (Ind Ct App 1998).


To guide the courts in deciding these types of cases, some state legislatures have enacted laws regarding a seller's disclosure to buyers of the known presence of mold in the structure. Some of these laws provide the seller with some immunity from liability for the buyer's damages caused by the mold by allowing the seller to disclose such information. See Montana Mold Disclosure Act 70-16-701 et seq. In contrast, California's Toxic Mold Protection Act explicitly creates a duty for the seller of commercial or industrial property to disclose known information about mold. See Cal Health & Saf Code Section 26140 (2004).


Other state legislatures have chosen to avoid legislation bearing directly on mold disclosure, under the belief that there is not enough data to prove either the danger of mold or the level of exposure at which mold becomes dangerous. Some of these legislatures have created commissions to further research the problem. Illinois passed House Joint Resolution 12 with such a goal in mind. House Joint Resolution 12 directed the formation of a joint task force to research the mold problem in indoor environments and report findings and recommendations for new legislation to address the issue. However, it is questionable whether the joint task force will be able to ascertain the specific levels of mold that should be proscribed. The California Department of Health Services, researching under similar legislation, was unable to reach a conclusion regarding at what level of exposure mold becomes dangerous, in part because different people may be more allergic than others to the same level of mold toxins. Indoor Air Quality Info Sheet, at 1. The 93rd Illinois House of Representatives considered House Bill 4593, which would have created the Toxic and Pathogenic Mold Protection Act, requiring a seller of residential real property to disclose the existence of mold in the indoor environment to prospective buyers. The proposed act relied on set permissible exposure limits established by the Department of Public Health. However, the bill did not pass, likely due to the fact that a determination of these exposure limits has so far proven elusive for researchers.


Some legislatures have decided to focus on state licensing requirements for building inspectors. The Wisconsin legislature had been considering Assembly Bill 660, a bill that would have established certification requirements for the performance of mold identification and abatement. However, AB 660 did not become law in 2004. Interestingly, Indiana's Code Section 25-20.2 requires home inspectors to complete inspection reports that explicitly state that the inspection does not address mold, presumably in an effort to squelch liability for sellers as well as inspectors.


The U.S. House of Representatives Subcommittee on Housing and Community Opportunity of the 108th Congress was considering House Resolution 1268, an amendment to the Toxic Substances Control Act, which would have required the disclosure of mold in inhabitable real estate sales and leases. However, the proposed act did not pass in 2004. In fact, House Resolution 1268 is the second such legislation proposed to end in subcommittee; the first was killed in 2002.


While California has launched headlong into mold legislation, many other state legislatures are trying to learn more about the potential dangers of mold before passing similar legislation. As a result, some state courts are weighing in on the question of whether a seller has a duty to disclose any known existence of mold in residential real estate. However, litigation on this issue is still sparse at best in Illinois, Wisconsin, and Indiana.

Illinois

While there are no cases in Illinois dealing directly with a seller's liability for nondisclosure of known mold problems, there is reason to believe that the Residential Real Property Disclosure Act (the Act) would require such a disclosure. The Act provides a checklist disclosure form detailing several material defects that the seller must fill out and deliver to the buyer before closing. While the presence of mold is not specifically detailed on the form, the form nevertheless requires the seller to disclose known material defects in the walls, roof, ceilings, floors, heating, air conditioning, or ventilation systems-all places where mold can grow or spores can be circulated throughout the house. 765 ILCS 77/35. Furthermore, the form requires disclosure of any known flooding or leaking, essentially any event that would cause the moisture necessary for mold to grow. Id.


The form states that, "a 'material defect' means a condition that would have a substantial adverse effect on the value of the residential real property or that would significantly impair the health or safety of future occupants…" Id. The ultimate issue of whether the presence of mold is a material defect within the contemplation of the statute is a complicated one because there are currently no standards for testing or determining at what point the level of mold spores in an environment becomes dangerous. The Illinois Department of Public Health believes that "[w]hile some reports exaggerate the severity of possible health effects is that it is important to handle all molds with caution." Environmental Health Fact Sheet: Stachybotrys Chartarum (atra) - What You Need to Know, Illinois Department of Public Health (October 2004). Many realtors in Illinois have recently started to require sellers to fill out a "Mold Disclosure" or "Mold Notice" form, in an effort to stave off any potential mold liability, but these forms are not required by state law, and are usually only required under the terms of the parties' real estate contract.

Indiana

There is not any case law in Indiana on the mold disclosure issue. Furthermore, a seller's liability would hinge on whether the buyer made an inquiry to the seller regarding a mold problem, because Indiana courts do not require automatic disclosure in residential real estate transactions. See Fimbel, 695 NE2d at 128. However, even if the buyer made an inquiry and the seller did not disclose the known presence of mold, there would still be the issue of whether the existence of the mold is a material defect. Until either the case law develops further in this area or the Indiana legislature speaks on mold disclosure, the safest route may be to take the one advocated by the Illinois Association of Realtors and have sellers fill out mold disclosure forms prior to closing.

Wisconsin

The specific issue of whether a seller of residential real property must disclose the known presence of mold in the inhabitable structures has yet to be litigated in Wisconsin. However, the common law duty of a seller to disclose known material defects in the residential property is similar to Illinois's statutory duty.

Conclusion


It may be to the seller's advantage in terms of liability to disclose the presence of mold, even if the seller has no reason to believe that the mold is dangerous. On the other hand, disclosure may harm the seller's other interests as the buyer may use the seller's disclosure of mold as a bargaining chip in negotiating the terms of the contract, or worse for the seller-choose not to enter into the sales contract at all. Certainly, the significant media attention given to mold problems and frequent comparisons of mold to being the "new asbestos," may strike fear in the hearts of many homeowners, as well as potential homeowners. For example, see "Toxic Mold: The Asbestos of a New Generation," Adrianne Mand, FoxNews.com (October 12, 2000); but also see "Toxic Mold—It's Not the New Asbestos," Barry MacNaughton, Los Angeles Business Journal (November 4, 2002). Regardless, it's important to discuss the issues surrounding mold problems with your real estate clients so all parties are better able to assess the possible risks involved.

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