Foreclosed homes plagued by mold cover-ups

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"This is an epidemic right now. It's been freshly glued down and pull it back, and look at the tack strip, infested with mold growth," said investor Jay Rhoden.

ATLANTA - A Channel 2 Action News investigation uncovered a dirty secret hiding inside thousands of bank-owned homes across north Georgia.

When a bank takes over a foreclosed home it can change hands several times. Then it sits empty, while an asset manager brings in a real estate agent, who brings in a preservation team. Eventually they sell the home "as is."

Oftentimes, the homes get moldy, but unsuspecting buyers don’t know the problem is there, because it’s covered in paint or carpeting. When a buyer finally finds the mold, there is no telling where in the process it got covered up.

"This is an epidemic right now. It's been freshly glued down and pull it back, and look at the tack strip, infested with mold growth," said investor Jay Rhoden.

He recently bought a Dunwoody foreclosure in November at $100,000 below market value.

"What a lot of people don't realize is that they’re going to get an amazing deal on a foreclosure, but you can really easily get burned," said Rhoden.

Rhoden put the foreclosure back on the market without much work, then a potential buyer hired an inspector. That was the first time Rhoden realized there was a mold issue.

"As we started to do more and more invasive testing, we found out there was mold there that had been covered up," said Rhoden.

Rhoden purchased the home from Fannie Mae, the Federal National Mortgage Association, which backs bank loans.

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"All the banks handle this different, but somebody saw when those items were going in, 'Hey you know we're painting over this mold, or putting carpet over this mold here,' and they didn't fix the problem," said Rhoden.

Rhoden hired Fred Rodriguez of Remediation Group to remediate the mold issue.

"Mold doesn't discriminate. It doesn't stop in a perfect line," said Rodriguez.

Rodriguez said he routinely sees a fresh coat of paint on a wall right above a moldy baseboard. He told Channel 2 investigate reporter Jodie Fleischer real estate agents have asked him to cut corners.

"There's Realtors that are well renowned here in the city of Atlanta that will turn a blind eye to it and pretend it's not there, tell us, 'Go in there and look at this not that,'" said Rodriguez. "It's about the money."

It can cost tens of thousands of dollars to rip out the drywall, carpet, get rid of the mold and replace everything.

"It's deceitful. I mean, there should be some disclosure laws in place that protect potential consumers," said Rodriguez.

Contractor Justin King showed Fleischer a foreclosed home slated for demolition because of severe mold damage. He said some banks do it the right way, hiring mold remediators and eating the cost before selling the property. But he said the cover-ups could also be unintentional.

"I don't think it is cart blanche fraud. No, I think there is a lot of ignorance," said King.

As a real estate investor, Rhoden did not even try to trace who covered up the mold in his house.

"We've signed the disclaimer saying even if there is mold, we're accepting it as is," said Rhoden.

"It's frustrating because you like to think everybody conducts business in an ethical manner, but the real world is that that's just not the way it happens," said Rhoden.

Many industry insiders told Fleischer that they repeatedly see mold covered up in Fannie Mae and HUD homes, but those companies also have the highest inventory of foreclosures.

Buyers should look for damp areas, examine any exposed sections of drywall, in a closet for example, and try pulling up a corner of the carpeting, before buying a house as-is.

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