Mold Happens, But Must Liability?

REALTOR® associations around the country are working with lawmakers to keep a lid on liability risk.

November 1, 2001

Call it mold madness. Whether you're catching the latest segment of your favorite TV news show or reading the real estate section in your local paper, household mold is a spreading topic.

The growing interest stems from many factors, but top among them is the growing understanding in the science community about the links between mold and many common ailments, including some respiratory infections and allergies.

Whatever is at the root of the mold boom, the country’s tort lawyers have grabbed on to the issue and are driving a wave of liability suits. Particularly hard hit are California and Texas, where lawsuits worth tens of millions of dollars are being litigated. One of those cases, in Texas, resulted in the widely reported $32 million award against Farmers Insurance, which was found to have mishandled a homeowner’s claim that mold was making her family sick.

In Texas, the cases got so thick earlier this year that insurance companies, in the early part of the fall, withdrew from the homeowners insurance market there until the state’s insurance commissioner stepped in. “The insurance companies have since calmed down, and are waiting for the commissioner to develop rulemaking on the issue,” Tom Morgan, an attorney with the Texas Association of REALTORS®, told REALTOR®Magazine.

Many of the cases are against insurance companies, but real estate brokers are getting hit, too. In Arizona, a buyer sued the listing broker when, shortly after buying a house, he learned there was heavy mold infestation that would cost $60,000 to remediate. That case was pending as of late September.

In response, REALTOR® associations around the country are working with lawmakers to keep a lid on liability risk. In California, where the country’s first major state mold legislation is working its way toward passage, REALTORS® moved quickly to get disclosure materials updated to include mold. Those materials include the state’s Transfer Disclosure Statement, which practitioners fill out prior to sale, and an environmental hazards brochure that practitioners hand out to buyers.

The quick moves on disclosure are believed to be sufficient for protecting practitioners. “I think we’ve pretty well taken care of the problem,” says Alex Creel, vice president of the CALIFORNIA ASSOCIATION OF REALTORS®. “After you give buyers information about the possibility of mold being in the house, they’re free to deal with it as they choose.”

In Texas, the Texas Association of REALTORS® has updated its Sellers’ Disclosure Notice to include mold under the question on environmental hazards. The association has also been conducting informational outreach on mold for its members, and has been working with the state’s insurance commissioner to keep insurers from withholding mold coverage.

At the national level, the NATIONAL ASSOCIATION OF REALTORS® is taking a close look at the liability issues and gauging its next step, say NAR analysts.

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