I went into the attic and there are signs of water in the area of the chimney on some boards that were installed on the underside of the rafters. It's some particle board that I don't really understand what they are there for (venting maybee? but the board goes all the way up to the peak so it's not like it would be able to vent to the top...) Maybee they didnt like the look fo the rafters when storing stuff in the attic? Either way I have a masonry guy and roofing guy that will be taking a look at both the chimney items Mike listed below and the roofing where it meets the existing flashing. The room underneath is the living room and the smell is not in that area, the fire place is in there and I've seen no signs of water damage so hopefully the water intrusion isnt bad enough where it makes it past the second floor and into the first floor. My plan is to fix this at the source of the problem and then hope for the best with the walls drying out and the smell going away. I'm a little irritated that our home inspector did not catch something like this, and when we asked the previous owners about the smell in the room they "didn't know what it was" even though it looks like someone did a half-*** job trying to add to the flashing with some tar substance. This is my first home so I guess all I can do is consider it a learning experience. If after I get the chimney/roof area fixed and the smell still persists I will open up the wall in the area of the chimney, but hopefully I do not have to get to that point. I'll post back when I make some more progress. Thanks to all for the help and feedback on this. Allseason, interesting to know that the moisture would creep up the walls like that, was it balloon framing?