Rental - failure to disclose mold

7 Replies

Hello Everyone,

I am new to the Forums and real estate. It's my first time posting here and it's a long one.

I wanted to give everyone here a shout out, most notably Brandon Turner and David Greene for solidifying some ideas I had from 2012 about real estate investing.

A little background on myself; I landed a Pharmacy job fresh out of college to obtain w-2 income. The income has allowed me to purchase my first rental property with a business partner. I live in the Denver metro area and noted that appreciation would be the only tactic anywhere near me. So, I ran some numbers and noticed about a 100 mile away there was an ideal drivable candidate for cashflow. After viewing several properties and terminating one, me and my partner settled on a duplex being sold as a single-family home. The real estate agent mentioned redundantly that it was a single-family home only, which I disregarded because of its clear layout as a duplex, possible triplex. I didn't know why the real estate agent was so dogged about it being a single-family home until later. The number of doors on the front of the house and the layout were key indicators of it being used as a multi-family home in the past, along with two mailboxes.

Now time to sink our teeth into the various problems! Yikes, hold on to your hats, because the fun guys are among us.

Me and my business partner did the standard inspection which noted nob and tube wiring. The owner agreed to replace the obsolete wiring. The inspector didn't notice that the mainline was broken or any signs of issues in the basement. After a month we had the mainline replaced for 11.5k. Every visit post purchase, my business partner complained of mildew smells coming from the basement. I woke up with a sore throat every time I slept in the basement, even with all windows open. The upstairs had backups when the toilet was flushed and the shower was running, which prompted a line scope. The scope resulted in our discovery of improper pluming, cast iron belly and a broken mainline. Before the first tenants moved in, the basement began flooding during the first major storm. My partner was always very concerned about the smell, but my lack luster noise wasn't concerned. Every time we left the windows shut for more than a day there would be a significant moldy smell buildup.

With the first major storm, we noticed water coming into the basement in several areas, which we promptly chiseled out and hydraulic cemented. One major crack was due to an improperly seated plantar terrace that was filled up like a landfill. The garbage included large slabs of concrete, brick, shingle, plaster, rock, and other hard heavy items. The major crack creating culprit was a 45lb piece of concrete that had been compacting the foundation wall. We also sealed the exterior perimeter with backer as a packer and self-leveling polyurethane.

After fixing most issues and believing all things were operational, the main floor and upstairs tenants moved in. They ended up flooding the basement with 30 gallons of water. The spigot near the mainline filled up a small cavity in the basement which would drain into 3 sections of the basement, two bedrooms, and a living room. The 30 gallons of water must have washed the cavity of mold spores. The entire basement smelt most foul after shutting of the main valve. Luckily a computer alerted me of the issue within two hours. We promptly removed the carpets and noticed large amounts of what looked like mold stains on the carpet pad, all tack stripes were completely molded in both basement rooms. Several different colors were seen, grey, black, and green. The carpet smelt extraordinarily of mold and mildew now. The problem was immediately taken care of, but instantly smelt of mold. We had just re carpeted one room and even the new carpet must have had mold washed into it and was not salvageable. All sitting water was shop vacuumed up and carpets were propped up for free air exchange with squirrel cage fans running the same day. Removal of carpets revealed cracks through the concrete floors in every room.

At this point we both realized why the house was being sold as a single-family home. While taking care of the first issue the neighbor stopped by to talk to us. They told us that the previous owner knew about the mildew in the basement and the flooding issues. They even mentioned that the owner couldn't figure out how to make the upstairs plumbing fully functional. They told me that the previous tenants had moved out because of all the issues they had with the property. I was told that the previous tenants demanded that the owner fix the flooding in the basement and take care of the smell. He decided to disregard the tenants demands, so they refused to pay unless the problems were fixed. The property went vacant for 4 months before me and my business partner purchased it. The owner only disclosed mild carpet stains and wear and tear in the basement. Most of the basement had been recarpeted prior to our purchase, which we liked. Every aspect of the basement looked perfect; the problems well hidden.

Behind the walls were not a site for sore eyes to see. The property was air quality tested. The lab results confirmed mold e.g., Stachybotrys, aspergillus, and a variety of other mold species. Remediation proceeded; drywall was removed. A clear flood pattern was visualized around most of the perimeter walls on both drywall and concrete. Flooding sites included several large foundation cracks extending from the floor to the ceiling. Two egress windows had failed allowing water in and probably the largest amount of water came from the garden spigot. It seems the previous owner ditched all his problems on me and my business partner and ran-off with a nice profit.

The property was purchased about 6 months ago and at this point I am wonder what would be the right step to take?

The previous owner failed to disclose all issues with the house. I have a letter from the neighbor. Does anyone have any experience with failure to disclose issues?

Originally posted by @Derek R Clark :

Hello Everyone,

 Does anyone have any experience with failure to disclose issues?

Yes. You need to speak with an attorney and your insurance like yesterday. 

Scoping the sewer is cheap insurance to do before purchase. ALWAYS SCOPE!

 

Well the fact of the matter is that all homes have mold.  It is going to be hard to hold a non-owner for mold. Good luck with t hat. In California a non occupant seller is held to a lower standard than if the seller lived in the property.   

@Derek R Clark

Damn. That sucks. Sorry to hear about it. Not that you didn't do this, but it seems a time to reiterate that any buyer in Colorado should do their due diligence. Buyers and agents get wrapped up in making the deal work that sometimes they ignore steps everyone should take to protect themselves. A $120 sewer scope is an easy example (and an absolute must) as @Matt M. said. We've had numerous deals in Denver and Colorado Springs where the seller says they just scoped the line and it's great, and when we scope the line, it's -- uh -- not so great. 

There is no standard "mold disclosure" form in Colorado, unlike lead-based paint that has it's own form. However, sellers are required to disclose all known adverse material facts, and presence of mold would seem to be one. As everyone said above, talk to a lawyer. You might reach out to @Drew Fein .

You mentioned a few times that it was a duplex but marketed as a SFH. I never heard if that came up to bite you in the butt?

two different views 

Washington State Law:

Mold is only addressed in state law as a requirement for landlords to provide written information to tenants about mold and its health impacts (RCW 59.18. 060). ... Other factors such as smoking, chemical fumes and pesticides can impact renters' health and aggravate asthma and allergies.

Federal Law:

To date, there are no federal laws on mold, either for acceptable levels of exposure or building/rental standards. ... Because toxic mold goes against the implied warranty of habitability laws set up by each state, landlords can be responsible for not keeping the rental property free of hazardous conditions like mold.

Look up your state laws and go from there.

I’d probably start with your realtor. Find the disclosure forms.  I’d then have your realtor present the issues to thier realtor.   If it wasn’t disclosed and you can prove they knew about it, they they should be responsible for the mitigation.   If they fight it, then bring an experienced Real Estate attorney in.  Your realtor will have access to one.  

Thanks for the replies everyone. I agree a scope should have been done as part of a bare bones due diligence thought. I made a hard hit mistake on this investment and that will not happen on future investments. Sewergard covered $1200 of the $11500, confirmed 3 days ago. Flow right wrote a labor and parts split for the project after a 4 months push. I'm happy being diligent about getting a correct proposal paid off. 

My realtor wasn't very helpful.

Converting it to a multifamily wasn't and issue, it increased the taxes significantly, paired with other property increases. The property is probably going to stay a single family house sense foundation from swelling soil over 100 years has caused massive cracks throughout the entire basement foundation. This house had the best foundation out of the dozen other properties I viewed. I heard Brandon talk about a friend he had that also had a 100year old money pit. Do you guys think old houses are generally best to avoid unless you get instant equity?

I will be receiving  quotes for foundation fixes, drywall, and flooring. 

Thanks for the the reply, Drew Fein. I'll call you on Monday.