UOTE=Epicus07;18252138]Hey guys, I started a partial tear down of "Woodhouse" in preparation for some upgrades. There is no rust on the exterior of the frame and it is in excellent condition so I was quite surprised to see the rust inside the frame. I noticed a moderate amount inside the steer tube when I changed my stem out. There wasn't much inside the seat tube when I pulled the post. the bottom bracket is in good shape so I almost left it but the Velo Orange is brand new so i figured I would swap it out. I had a real hard time freeing the original bottom bracket and when I pulled it I discovered a moderate amount of rust.

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Custom frame builders almost always drill or cut some holes in the bottom bracket underneath for drainage. I'm guessing that you got water down there, it was stuck, and it did it's evil alchemy turning steel to rust. I'd guess that you're probably ok, but remove the rust to check to see how much material is rusted. I have some oxalic acid ready to use on an old vintage frame, others swear by it, you might want to try it. I won't go into how to use it, you can find it on this site, or others may post their recommendation.
Once you do that, drill a hole in the bottom of your BB, paint the hole you just made with something, then use some Framesaver or Boeshield to coat the innards and stop it from happening again.