When Bill Morgan, a retired policeman, moved into his newly built dream home in Williamsburg, Va., three years ago, his hopes were quickly dashed. His wife and daughter suffered constant nosebleeds and headaches. A persistent foul odor filled the house. Every piece of metal indoors corroded or turned black. In short order, Mr. Morgan moved out. The headaches and nosebleeds stopped, but the ensuing financial problems pushed him into personal bankruptcy. “My house is not worth the land it’s built on,” said Mr. Morgan, who could not maintain the mortgage payments on his $383,000 home in a Williamsburg subdivision called...