status = mkdir("/home/cnd/mod1", S_IRWXU | S_IRWXG | S_IROTH | S_IXOTH);

But when the directory is created it ends up with the wrong SELinux context. It inherits it's parent's context and 
not the one defined in file context.
This is right behavior. When you create some
                        file it inherits it's parent's context.
Is there a C call that can be used that understands how to correctly create and label SElinux directories?
You can define filename transation in selinux policy related to your daemon. 

                    More informations and
                                tutorial how to use it, you
                                        can find here:
http://danwalsh.livejournal.com/46018.html

                                            If
                                                you need some help, please feel free to contact me. 

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Regards.

--
Lukas Vrabec
SELinux Solutions
Red Hat, Inc.