Dodd-Frank, Natural Disasters, and What You Need to Know about Mold

By: Francis X (Rich) Finigan © Calypso Continuing Education™ 2019

What do you know about mold? Where are the alligators lurking, as flood waters abate? Do you think you have third party liability to borrowers? If you think “no”, think again and keep reading, because there are the alligators, along with their attorneys, lurking in the receding floodwaters!

What do you need to know about mold to produce credible appraisal reports and protect yourself, your clients, and users of your reports from liability? Keep reading to find out.

Consider the following:

  1. Where there’s water in contact with building materials, there is going to be mold!
  • The NFIP (National Flood Insurance Program) provides federally backed coverage for homeowners and small businesses throughout the country, but NFIP as of 2017 was $20 billion in debt, due to the recent succession of historically severe hurricane seasons and inland floods nationwide.
  • Whether you believe in climate change or not, climatologists predict that these events are only going to get more frequent and worse. When resources begin drying up, insurers and lawyers start looking for another pocket to reach into. Could the appraiser be the next target?
  • Here’s why I’m concerned, before Dodd Frank, and subsequently the Consumer Finance Protection Bureau’s (CFPB) interagency guidelines, our declaration, describing who the intended users are, seemed to provide us with protection against third-party liability associated with our appraisal reports.
  • The Interagency Guideline’s Interim Final Rule[1] requires lenders nationwide to inform mortgage borrower/applicants that they can receive a free copy of whatever appraisals, reviews, computer valuations and other data used in the transaction. Borrowers are entitled to see this material “promptly” after the appraisal report is completed, or three days before their loan closes, whichever is earlier. The lender will have to inform the borrowers/applicants of their rights within three business days after receipt of their mortgage application.
  • Recently, the Arizona Court of Appeals found that where an appraiser knows his/her report will be given to third parties, the appraiser owes the third parties a duty of care. The court decided this despite express language in an appraisal disclaiming the right of third parties to rely on the appraisal report’s conclusions and opinions, because they were not intended users.

Mold can be the stuff that turns an American dream into a nightmare!

As an appraiser, design builder, and environmental expert, I can tell you with great certainty, mold can absolutely have a large impact on the value of a property!

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Society has used mold to its advantage for thousands of years. Without mold we would have no cheese. Without mold we would have no wine. Heavens, where would we be without a robust blue cheese or a fine Grand Cru? In addition to the hedonistic pleasures it provides, mold has also given us one of the greatest medical achievements – penicillin. Penicillin has saved countless millions of lives.

Mold has also been recognized as a blight since ancient times, where passages from Leviticus (Chapter 14 verses 35 to 53) allude to with homes streaking of red and green on the walls being unfit for habitation. But lifestyle I and required to be torn down and disposed of in an “unclean place outside the village”. Construction technology changes in recent years exacerbate the problems caused by mold.

Americans spend most of their time indoors. In fact, many Americans spend about 90 percent of their time indoors, where they are exposed to a smorgasbord of air pollutants. According to EPA, the concentrations of air pollutants indoors may be hundreds of times greater than concentrations of pollutants in outdoor air.

Major problems with indoor air quality began in the 1970s with the energy crisis. As a way of conserving energy we built our homes as tight as a frog’s…ah, inner eyelid. Issues like inadequate air exchange and drainage and improperly installed synthetic stuccos and flashing can trap moisture in wall cavities, an ideal environment for mold to flourish.

Mold is the next asbestos – with a major difference. It doesn’t have a 30-year gestation period like asbestos. Negative effects from mold can onset within a few hours of exposure and can include skin irritation, upper respiratory congestion, headache, lack of energy and extreme symptoms like pulmonary hemorrhaging and even death. Mold can be present in any home, in any price range, anywhere in the entire country. Mold is ubiquitous!

Understanding Mold

Mold isn’t the problem it is actually a symptom of a problem…uncontrolled water or moisture in a building.

There are several types that have caught the attention of society today like, Stachybotrys (a.k.a. black killer mold) Penicillium, and Aspergillus. These molds grow where there are moisture, warmth, and food. They like to grow on wood or wet cellulose-rich building materials. There is lots of cellulose in the middle of the walls. Mold also like to grow in ductwork when the right conditions present themselves. Don’t think that mold is limited to poorly maintained homes; mold can be present in any home that water has been allowed to penetrate or excessive moisture buildup.

Think of a beautiful multi-million-dollar home where the framing is saturated during a rainstorm and then doesn’t fully dry.  The contractors will often insulate and close up the walls trapping moisture in wall cavities. This scenario is much more common than you would expect. Once mold spores have been incubated by a water source, mold can continue to proliferate from relative humidity of 50% or greater.

Mold wants to reproduce — not an unreasonable expectation for any of God’s creatures. It does so by sending out into the air mold spores that land on surfaces of damp cellulose or wood. The mold “knows” it is competing with other creatures for space so, some molds emit toxic gas, mycotoxins, in order to poison other creatures competing for the same space. These mycotoxins do not affect only select people, like typical allergens. When inhaled, mycotoxins affect everyone to some degree. Those at greatest risk are individuals whose immune systems are compromised, such as infants, the elderly or someone recovering from pneumonia or the flu.

Protecting Yourself from Liability

You don’t have to dress like this to protect yourself from liability!

If you want to protect yourself from liability, be aware of conditions that mold thrives in. Conditions include; negative drainage, leaking foundations, dampness in basements and crawl spaces, leaky plumbing, improper flashing, that can allow water into wall cavities, improperly installed synthetic stucco, excessive moisture in crawl spaces and attics and more. Be sure to have these areas reviewed if they show signs of moisture or water penetration. Last but not least, make accurate disclosures to your client regarding what exists.

To learn more about recognizing conditions that can support mold growth and appropriate ways to disclose your observations, spend three hours of your valuable time taking our “Mold a Growing Concern” course. It’s approved for three hours of continuing education in most states. You’ll be glad you did!

Good luck and do good work,


[1] 12 CFR Part 1002 – Equal Credit Opportunity Act (Regulation B) specifically 1002.14 Rules on Providing Appraisals and Other Valuations.