Oh, boy... Your question provides a bunch to discuss and consider.
Water damage
Covering up mold and rot is NOT a good idea. Any contractor who recommends this to you is the wrong contractor. Before you make any decisions on how to proceed, you should do an inspection of the wall cavities at the suspected points of water intrusion. Those areas are typically under windows and areas of concern based on visual inspection.
By opening up a few of these areas you can determine what
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