I wouldn't make a big deal about it. Probably less than $1000 fix. I heard they have a sponge technique where they put a sponge on a pole full of cement like paste and seal up any cracks or holes. This guy will "sell" you his services. He'll probably tell you its best to do it now before the sale of the estate. Just keep in back of your mind that you can use it as a negotiating point in the sale. Offer the buyer to fix the flu liner (if there's a real problem).

I have the same issue in a 1988 Redman MH. As a Project Manager for a Development/Construction company, maybe I can help. The panels you refer to are MDF (medium density fiberboard) and were used prior to the 1990's in both flooring and exterior wall coverings for manufactured homes. This material, unless treated with a satisfactory primer, will be subject to damage from moisture rather easily. It is a HIGH maintenance material. To deal with the crumbling (it is generally not rot) caused by the invasion of moisture, it is best to cut out those areas that are damaged and replace with construction grade OSB (oriented strand board). It is cheaper than plywood, is more structurally sound, and won't delaminate like layered-panel material such as plywood. Wood putty and caulking might fill the small areas, but the damage goes further than what you can see. If you have a 6" area of damage, you should cut out at least 18" in all directions. Be aware that, if you simply replace the siding with plywood, OSB, or T-111, you will probably not be matching the existing texture of your current siding. Painting it will make it look good from a distance, but the difference in the material will be obvious. You may want to consider covering everything with a different material. As I said, I'm facing the same problem. My solution, since the damage is only where the siding meets the stucco skirting, is to cut out 16" above the skirting, all the way around the base of the home, then replace it with 7/16" OSB. I'll be applying a polyethylene (rigid plastic) faux stone from the bottom of the skirting, overlapping the OSB and the MDF (about 48" high) as a wainscot. Above that, since the MDF is still intact, I'll be applying faux vinyl logs. These are foam-filled and apply just like regular vinyl siding. Be careful when cutting the old siding off. You can use a circular saw, but set your blade depth just slightly less than the thickness of your MDF, so you don't cut into any studs, and heaven forbid, any electrical lines.

Thanks for your advice! The concrete was actually my idea (haha). The contractor suggested putting flashing around the foundation and then adding soil to grade away from foundation. I asked about the concrete because it seemed like a more permanent and waterproof solution. He's coming back today for a second look to finalize plans and I will ask him about just doing the flashing/grading and possibly a drain around the back perimeter (which sounds like a good idea, anyway). I feel we have to remove the deck and fill in that room because it's so horribly constructed (a deck constructed on top of an open hole in our basement, with just foam insulation separating our house from everything outside? insane! there's no door between our house and the basement, btw). The deck is also rotting from being exposed to so much rain and never being cared for, so it's an eyesore anyway. We've had two other companies come out-- there aren't many options around here. One were total shysters who just wanted to put plastic sheeting on the inside of our BRICK foundation and force the water to run behind it into an interior drain (while growing mold and ruining the foundation)---SO stupid, and for almost the same amount of money as actually fixing the problem. The other could only do a vapor barrier in the crawlspace and install a drain outside. The one we're working with now can do anything we need and is the only company like it around here. Switching to flashing/grading on the sides sounds great (while keeping the concrete patio)-- I'll ask him about that today. It would be really nice if we can get the cost to $5,000.

I would hold off. Is it marble? Is it original to the house? Your house is older and the fireplace did work at one point. Have someone in to find out what the problem is and whether it can be fixed. Then think and think some more... In other words the only thing I would do immediately is get rid of the paneling (it might be brick underneath) and strip the paint off the mantle and surround, which is VERY pretty... This house needs tlc by undoing the various "updates" from past owners...