Take insurers' hint and protect yourself from mold.

After 9/11, the insurance industry moved quickly to protect itself from further liability resulting from terrorist attacks on commercial and residential property.

Exclusions for terrorist attacks soon appeared in policies for even owners of multi-family and single-family homes far from probable terrorist targets. Unnoticed by most was an additional exclusion--for mold damage and associated liabilities.

The mold exclusions were initially prompted by a few high-profile lawsuits where insurance companies were ordered to pay multi-million dollar sums to tenants or homeowners. In the last three years, most major insurers have also moved quickly to protect themselves from liability resulting from mold damage to commercial and residential properties, where it is very common.

Mold contamination is certainly not as catastrophic as a terrorist attack, but the reaction from the insurance industry was similar, which underlines how serious the mold issue has become.

Insurers anticipated the rising wave of mold cases across the country, and they exited the scene. What I find amazing is that the other parties bound to be affected by the financial fallout of moldy properties--real estate investors, lenders, developers, and ratings agencies--have not taken the hint from insurers and moved equally fast to reduce their risks.

Insurance exclusions for mold now exist in almost every state. With no traditional coverage for the financial fallout of mold, lenders and investors are now moving towards using new prevention techniques, including mold-specific inspection protocols, new detection devices, and the use of mold-resistant building materials.

Among the real estate investors that I work with, there is a lot of disagreement about which mold prevention techniques will truly mitigate risk. I

t's been quite frustrating for a lot of investors that I know because they understand that, unlike a terrorist attack, you have a great chance of preventing mold contamination if you take the right steps. Everybody is so focused on TRIA (The Terrorism Risk Insurance Act of 2002), but how many buildings did mold strike this week?

The conditions required for mold to grow are: the existence of mold spores, moisture in the air, a normal temperature range, and the presence of a food source. Since temperatures, airborne spores, and moisture are facts of life, the most controllable variable is the food source--cellulose or paper, primarily in the form of paper-faced wallboard, paper-faced insulation, organic roofing and ceiling products, and any other organic building material.

Since paper-faced materials exist in the vast majority of buildings constructed after World War II, the number of mold damage cases has risen to the level that only asbestos once occupied. When mold is discovered in a hotel or healthcare facility or a home, large sums of money are at stake, in the form of costly clean-up pay-outs, defaulted mortgages, third-party lawsuits, and/or the loss of ability to refinance or sell.

Until recently the lending and building industries have not been tightly focused on preventing mold; they've been looking at how to 'fix' the problem. Unfortunately, there is no 'cure' for mold other than prevention.

It has baffled many builders and remediators with its ability to reoccur just weeks after it has been scraped or sprayed away. That contrasts sharply with asbestos, lead paint, and other hazards that are considered 'gone for good' after the contamination has been removed or contained.

For the lender, if a borrower defaults and you can't guarantee clean-up on the property, it greatly compromises your ability to get your money's worth out of the investment. If commercial tenants or building managers are spending millions of dollars to remediate a mold infestation, how protected can real estate investors be if the mold returns in 30 days?

For residential properties, we estimate that remediation of mold contamination averages $40,000 for a single-family home. In addition, mold problems can taint a property's value, causing a significant downgrade in resale price.