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Over here, mold watchers. Not to steal the thunder from the latest media blitz, but homeowners’ insurance is only part of the mold story. Yes, yes, we all know about the Texas family that won an eye-opening $32 million in damages at an insurance trial for mold in their home last year. That and other cases have riveted attention on whether insurers will exclude mold from homeowners’ coverage. But real estate insiders are paying just as much attention to arguably a more pervasive matter called disclosure. Must sellers and landlords tell about mold in their buildings? What kind of mold? If it has been cleaned up, must they say how long ago? And does mold’s presence, or past presence, stigmatize the building? There are no certain answers. Which is precisely the problem. Consider a Broward County, Fla., home purchase contract this year that soured after mold was discovered. The buyers’ home inspector noticed mold on several walls in the $300,000 house and suggested an additional evaluation. The buyers said the real estate salesperson talked them out of doing more tests, downplaying mold’s ill effects. But after the couple’s pediatrician advised them to conduct further tests, they hired an environmental hygienist. Mold spores were found on surfaces and in air samplings. The buyers dropped the contract, threatened a lawsuit and ultimately forfeited part of their purchase deposit to settle the case, says their attorney, Michael Greene, a partner in Blank Rome Comisky & McCauley in Boca Raton, Fla. Greene won’t discuss specifics; a confidentiality agreement was crafted to prevent stigmatizing the property, seller and brokerage. “I believe the house is back on the market, and I believe they have now disclosed the mold,” he says. Any wonder why some attorneys say mold is gold? And why the real estate community is scrambling to decipher case law to limit its liability? Mold is considered contentious enough to warrant, for the first time, a two-seminar slot at the University of Miami’s annual Condominium and Cluster Development Institute in October. Like asbestos, termites, lead-based paint, leaky roofs and other property ailments, mold is rife with risk and liability. But unlike those problems, whose liabilities have earned them places in the lexis of real estate disclosures years ago, it isn’t clear what to say about mold. There are no standards for air quality and mold exposure, say real estate agents and attorneys. “The feds are in a quandary � because there is no threshold for what will make people sick, or not,” says Palm Beach County broker Tony Macaluso, who chairs the risk management committee of the Florida Association of Realtors. There’s also a dearth of case law in Florida and elsewhere about mold and real estate brokerage liability, says Leslie O’Neal-Coble of Holland & Knight in Orlando. O’Neal-Coble, a construction attorney who represented Martin County in a lawsuit against Centex Rooney when mold was discovered in the Martin County Courthouse, has been traveling the state lecturing to Realtor groups about mold liability. Part of the uncertainty lies in what mold tells a prospective buyer or tenant about a building, says O’Neal-Coble, who will speak at the UM institute. While it occurs naturally, she adds, mold generally indicates construction defects, like water leaks from the building’s envelope or from its air-conditioning system. While mold is described as the new asbestos, “if it was asbestos, you take it out and it stays out. With mold, if you don’t fix the underlying problem, it can come back,” she says. In condos, mold can result not just from construction defects, but also from lack of maintenance by the association, says William Sklar, a partner in Foley & Lardner in West Palm Beach. If the mold blooms in a common area, the association then must determine how extensively to investigate and fix the problem. If that means taking out walls, who pays? “The second, bigger, lurking problem is that once it becomes public that the building in question has a significant mold question, the building could be stigmatized in the marketplace,” Sklar says. “That’s an impact on value and impact on marketability.” Even one of the gold standards of property disclosures, the 1985 Florida Supreme Court decision in Johnson v. Davis, apparently isn’t providing clear guidance. The ruling in that case permeates almost every residential disclosure: Sellers must disclose material facts affecting the value of the property that are not readily observable and unknown to the buyer. It stems from the Davises discovering water leaks from window frames, a room ceiling, light fixtures, glass doors and a kitchen stove a few days after buying the Johnsons’ South Florida home for $310,000. This was after the buyer was told that ceiling stains and buckling plaster were from long-repaired minor problems, and wallpaper glue and moved ceiling beams. In the ensuing trial, the seller testified that he and his wife knew of roof problems before the sale. But, says O’Neal-Coble, the decision in Johnson doesn’t answer when mold actually becomes a known defect. Does a minor roof leak 10 years ago with a little mold compare to a whole house being affected? “There are no standards and there is a lot of controversy about toxic mold and whether it is or isn’t toxic,” she adds. Not all mold is bad, agrees Baker & Hostetler attorney James Mitchell in Orlando, former counsel to the Florida Real Estate Commission. “We haven’t had a judicial determination or any bill on the issue, so we don’t know where Johnson v. Davis falls in mold disclosure,” he adds. Other attorneys, though, figure the Johnson case mandates that mold must be told. Maybe more so, Sklar says, because of the potential health effect. George Pincus of Proskauer Rose in Boca Raton says mold is worse than a roof problem, though some sellers believe they needn’t mention mold if it has been removed. “If Johnson does apply to mold, the potential exposure and risk is more significant than virtually any other defect,” says Peter Kramer of Steel Hector & Davis in Miami. As for office and other commercial buildings, buyers and tenants do far more extensive, expensive due diligence than residential buyers. While caveat emptor tends to apply, landlords could face liability for so-called sick buildings if tenants find mold, says Pincus, president of the National Association of Industrial and Office Properties’ South Florida chapter. Kramer says the last line of the Johnson ruling could apply to commercial buildings. The justices wrote that the sellers’ duty to disclose “is equally applicable to all forms of real property, new and used.” Absent clear answers, protective measures are growing. Pincus is advising clients, particularly buyers of condo units that may sit for months without air conditioning, to hire environmental hygienists. Richard Barkett, chief executive of the Realtor Association of Greater Fort Lauderdale, says the group is advising its members and sellers to disclose mold to buyers. Several Realtor groups statewide are asking the Florida Association of Realtors to draft a seller’s disclosure form for mold, he adds. For now, it seems the uncertainty about mold liability is the fungus among us. Terry Sheridan can be reached at [email protected] or at (954) 468-2614.

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