How to negotiate with bank for mold you can't see?

Question

My offer was accepted on an REO, and there was a strong smell in the house before--then the bank repainted the interior, probably to cover up the smell. I'm pretty sure it was mold, although the only visible mold I saw was a small trace of grayish stuff on the wall. I don't know for sure if mold is there but if it is it's hidden behind the drywall, or somewhere else.

To have air samples taken and tested, it's anywhere from $350 - $700, depending on the number of samples. However samples aren't going to give me proof for the bank of how much it would actually cost to remediate.

What do you do in this situation--skip the samples and just have some remediator come in there and try to give an estimate?

J Scott · Answer

It's very possible that what you're smelling is just the result of the house being closed up without air flow for several months/years.  It's pretty common for REOs to smell like they have a mold problem when in actuality they don't -- once you get the HVAC running with a decent filter, the smell will go away.

That said, if there is a mold problem, the first course of action is going to be to determine what the source of moisture is, and get it remediated.  This won't be done by a mold testing company, but instead by a good contractor who knows what he's doing.

If you bring in a mold testing company, expect the results to not be very useful from a remediation standpoint, other than to tell you what the spore count is (this will help you determine if it's within acceptable ranges based on various studies) and what specific spores are in the air.  These tests are great once the rehab is complete, as the results can reassure your buyers that the house is relatively free of mold (there are always spores in the air, so a house is never mold free).  But, again, it probably won't help from a remediation standpoint.

Now, as for how you deal with this from a negotiation perspective, I don't think you do.  I've never seen a bank willing to deal with mold issues after a property is under contract.  If you want to ask for a flat discount on the price, go for it, but don't expect that you can get the bank to pay for specific mold testing or remediation, and certainly they won't provide any indemnifications, warranties or promises about the mold situation.

If all this makes you uncomfortable, it's probably best just to walk away from the property.  But, in my experience, you may be walking away from a property that didn't necessarily have much to worry about.

Now, that said, I've seen at least one occasion where the bank literally had someone come in to an REO that was covered with mold from floor to ceiling to wipe the walls down and give the impression that there was no mold present.  We saw the house before and after it was wiped down (it was listed with different agents before and after so the agents could reasonably argue they didn't know about the bank's action and wouldn't have to disclose them), so we knew for a fact what the bank had done.

Funny enough, the mold remediation company we used actually gave the bank a quote on remediating the problem before we bought it...

Maryann L. · Answer

I think everything J Scott said is spot on.  My partner has bought the cheapo mold kit at Home Depot before and used the results to get more of a discount from the lender.

J Scott · Answer

For those who are interested, and to go along with my last response, attached to this post is a copy of an actual Seller Disclosure that I did for a property where I remediated a water/mold problem and then resold the property...

Note questions 7a and 7b and my additional explanations in section 15 for these questions.  As you'll notice, I was completely honest, didn't make a big deal out of it, and the buyers never questioned me.

(For obvious privacy reasons, I've redacted parts of the disclosure that are unimportant to this topic and contain personal information)

Joel Owens · Answer

There is a difference between mold and mildew.

Good old water and soap can handle most surface mold.You would want to test with a swab to know what you are dealing with before attempting to clean.

The charcoal masks for about under 50 bucks can be bought that make for easy breathing in houses with mold or meth problems etc.

If a property had mold you have to disclose or face a future potential lawsuit.A mold company will provide a mold remediation certificate with a guarantee.This will assure the buyers along with test reports after remediation that the property is safe.

You have to make sure you fix the source of the moisture problem and just the surface.An inspector will use a moisture meter to do surface readings to determine if a leak is ongoing.The higher the saturation reading the closer to the source.

If a property does have mold and you remediate you must buy really cheap so that you can resell with the stigma this property will have.Even with the certificate and warranty the property will not be as attractive as one without those issues so you need to price lower for resale.

J Scott · Answer

Jerry -

I don't imagine there are any legal issues with using a GC instead of a mold remediation company, though I'm no expert in this area, and I could be wrong.

Here are some things to consider:

- Make sure the GC is licensed, insured and bonded in your jurisdiction to provide the most liability coverage possible;

- A mold remediation company will likely provide a warranty for the work should the mold return or if the third-party test comes back as the problem not being fixed.  Will your GC do the same?

- Make sure you have a third-party mold test completed to ensure that the problem is fixed and that the spore count in the house is within reasonable levels after the work is completed.

Bienes Raices · Answer

^ thanks Jason!

J Scott · Answer

Funny, someone just emailed me a similar question a few minutes ago...

Here was my response to that person:

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Generally, when you sell a house, you'll have to provide the buyer with what is called a "Sellers Disclosure Statement."  This is a standard document (different in every state) that asks lots of questions about the property and what happened with the property during your time of ownership.

For example, most Sellers Disclosure Statements ask things like, "How old is the roof?" and "Was any part of the roof repaired or replaced during your ownership?"

Additionally, most of these statements have a section on mold, and you will have to disclose that the property had mold and that you fixed the problem.  If you don't write anything that might alarm the buyers about the mold -- and if there is no evidence it still exists -- it probably won't be a big deal.  Personally, we've bought a lot of houses with mold, fixed the problem, disclosed it to the new buyer, and the new buyer didn't have any issues with it.

I'm not saying that it will be like that with every buyer, but in my experience, it's not that big of a deal as long as you've correctly fixed the problem and honestly disclosed it.

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So, the short answer is yes, you'll have to disclose the mold to a future buyer, but in my experience it's really not a big deal...

Dimas Garcia · Answer

Bienes,

If your place does indeed have mold, or if you have in writing from a contractor that it has possible mold, not only negotiate a discount for the clean-up, but also for the time. A house with mold will be on the market a lot longer and ends up costing the banks even more. The worst that can happen is they say no.

Jerry George · Answer

Scott/ Joel,
Thanks for your comments.

Is there any legal issues with renting/selling a home which had mold issues in the past and fixed it ? Are we supposed to disclose this to future buyers /tenants ?

How do you handle your REO transactions with mold issues and flipping it later ?

Joel Owens · Answer

When I looked on the EPA site it said no standards for Airborne mold but did not mention surface mold.

I know there are organizations that have remediation standards.

You might want to check your state as well.Sometimes when the Feds don't address an issue the state does.

How to negotiate with bank for mold you can't see?

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