Don't let mold catch you or your clients off-guard

Carl Smith, CEO and executive director, GREENGUARD Environmental Institute

As published in Scotsman Guide's Commercial Edition, June 2006.

A major bank lends several million dollars to a developer of a large multifamily building. To keep on schedule, the general contractor puts up drywall before the exterior of the building has been sealed. In the meantime, it rains.

Two months into occupancy, tenants complain. They hire lawyers, capture headlines, incite protests and file lawsuits. No one will lease space in the building. The developer defaults on the loan. The insurance company settles with the occupants for a six-figure amount that makes headlines.

The property is now distressed. The bank must report the problem to rating agencies and scramble to retrieve its investment. The loan originator loses a great client, who now finds it almost impossible to get competitive financing. All from less than two gallons of rain that leaked into the building before it was sealed.

The culprit? Mold.

It's an insidious biological organism that feeds off building materials and is fueled by moisture and humidity. Although mold spores form indoors and outdoors, they are often harmless. Under the right conditions, however, mold can cause tremendous damage.

The impact

Mold's impact on human health is not clear. While it can trigger allergies and asthma attacks, its long-term effects are unknown. But the financial fallout of mold is well-documented and real.

For mortgage lenders, mold has become to this decade what site contamination and asbestos abatement were to previous decades. There is one big difference, however -- federal regulations are in place for asbestos and soil/groundwater contamination. There is none for mold.

According to a September 2005 study from an environmental consulting firm, an estimated 2 percent to 4 percent of the renovated and new spaces constructed between 2004 and 2008 (representing 800 million to 1.2 billion square feet) will have significant moisture-intrusion events or related complaints within the first seven years of operation.

The challenges

Although lenders can be committed to fighting mold problems, they also find lawyers and consultants urging them to take what seem to be unnecessary steps.

In The Facts About Mold, the American Industrial Hygiene Association states: "The scientific complexities alone would be a huge challenge, but the truth is that other difficulties dwarf them. The intense public and media attention on this topic often creates emotionally charged circumstances that make scientific judgment and reasoned dialogue difficult. ... Building occupants or public officials can react with excessive alarm to perceived potential threats."

In addition, proclaimed experts can offer conflicting advice and assessments. Spray this, replace that, inspect first and remediate later. Everyone has a cure and is willing to offer advice, particularly once the problem is clear.

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