Again i thought i read or was told that by someone, but you cant trust what you hear.
In my house i just ran all new wire and pulled the old cloth romex to solve the problem, along with a new sub panel.
if a home inspector or inspector of any kind tells you that you cant use a GFCI on an ungrounded system, their idiots.
The National Electrical Code has stated that this is the only acceptable way to do it. has stated this for over the 30 years that ive been an electrician.
The National Electrical Code (NEC) 406.3(D)(3) permits any of the following installations when replacing a 2-wire ungrounded receptacle:
(a) Replace it with another 2-wire receptacle;
(b) Replace it with a GFCI-type receptacle and mark the receptacle with the words "NO Equipment Ground" ; or
(c) Replace it with a grounding-type receptacle protected by a GFCI device (circuit breaker or receptacle). Since the grounding terminals for the receptacles are not grounded, you must mark the receptacles with the words "GFCI Protected and NO Equipment Ground" By the way gfci receptacles come with these peal and stick labels.
A GFCI-protected grounding-type receptacle without an equipment-grounding conductor is safer than a grounding-type receptacle with an equipment-grounding conductor, but without GFCI protection. This is because the GFCI protection device will clear a ground-fault when the fault current is 5mA (+ or - 1mA), which is less than the current level necessary to cause serious electric shock or electrocution.
A grounding-type receptacle without a ground is a safe installation, as long as the protection circuitry within the GFCI device has not failed from shorts or voltage transients.
There is an interesting clause that states if you add one or more NEW outlet to an existing system that is ungrounded, they allow you to run a wire to a nearby cold water pipe IF that pipe is part of the grounding electrode system of the structure. but this ONLY applies to NEW outlets added to an existing system. All original outlets must be grounded to panelboard OR be GFCI protected. This is a weird clause.