First, try to ascertain where the water table is. Just because you're on a hill doesn't mean the water table isn't high. If the water table rises above your footings at any point, an interior system might be indicated. That's because water could be coming up through the slab or at the joint where the wall meets the poured footing. If the water table isn't that high, the only sure cure would involve excavating all around and using one or more of a number of different waterproofing products. These include spray-on membranes, bentonite, plastic bubble membranes, peel and stick and crystalline products. If there's a surface water problem, yes, swales might be helpful. But before that, look closer to home. Are your eavestroughs clean and functioning? Where do the downspouts exit? They should be sending water at least 10 feet away from the foundation. Is there a good slope down from the foundation to surrounding soil. I've seen many homes that sit in a depression--either because the original builder put the first floor too close to grade, or subsequent owners altered the grading. Not to mention the gardening types who load up on thirsty plants next to the foundation and water away like crazy. Next time it rains, go outside and check what's happening. ******* Mildew grows on my shoes in the closets upstairs, and my clothes have a musty odor. This is a separate problem and very likely the result of inadequate insulation on the closet walls. So moisture condenses inside--or even on--the interior walls during the winter. You can usually solve this problem by keeping the closet doors open during winter or providing an additional continuous source of heat. It's a reason to avoid placing closets on outside walls of a home, and especially corners where three and four stud framing cuts the R levels drastically. This post was edited by worthy on Sun, Mar 17, 13 at 16:49

Don't know about the garage question. Prime first w/ something like BIN or Kilz. The original porch paint was probably oil based and now your sis is likely using latex (or someone did along the line) and hence the peeling. SW makes a good porch paint. I like oil, but it can be hard to get and these days I don't think it matters as much. The latex paints can be very good, too.

There is extensive experience with CBS construction--probably 96% of residential and 60% of low-rise commercial--here in the rainy sub-tropics of So-Fla. I'm suprised to find this block construction in NJ, done Florida-style, i.e. without insulation, and wonder how good the local builders are at executing it. But, I believe the OP that the issue IS wind-driven rain. The 'S' in CBS stands for Stucco, and that is the ONLY thing that makes an inherently leaky bare-block wall watertight. What jumps out at me is the OP mentions a "light" coating of stucco. There is nothing "light" about a proper stucco job. It is a THREE-coat process, and the end result is over 1/2" thick. Again, the stucco is the primary water blocking factor. Paint/sealers only enter the equation "down the road", after foundation settling has caused hairline cracks. Proper stucco IS the waterproof membrane. However, in a place like NJ with real winters, the other posters are correct that, rain aside, you probably need to clad the exterior with some kind of stiff insulation and, style permitting, fiber-cement planking. If you wish to keep the stucco look, there are EIFS systems that can be stuccoed-over. The EIFS systems typically include features that allow exterior condensation to drain away... make sure the stucco guy does NOT clog these.

Thanks for the feedback guys! I’d really hate to cover up the whole thing, as the front and stair-side walls are fully bricked and visually cohesive at the entrance (as the 1st floor part of the chimney is also right there front and center). Thoughts on drywalling just the 2 sides that have the cinder blocks, and leaving the front visible sides as brick? Also, any thoughts on if we were to stain/paint the brick in any way (such a white washing or German smear)? I generally like brick, just seems like it could be brightened up or updated some how? Katie B- thanks for showing that cinder blocks don’t have to be an eyesore! Those are beautiful, and if it weren’t for the sudden change from brick-cinder block, I may be more inclined to appreciate it in this case. When we bought the house from the son of the original owner, he told us that his dad ran out of bricks, so that might just be sitting with me as an job done perfectly, until the end lol.