Termite infection? I think they have a creme for that. Just kidding.

What you described is very typical and can be resolved with fumigation. The $5K sounds obscenely high though and it should be between 2 and 3K for most 4S Ranch sized houses. Russel covered the dry rot issue. All that has to be done there is to replace damaged wood. To prevent reoccurrence find out where water is coming from and fix problem. Sounds like it could be overspray of sprinklers on the patio post.