By Murray Wennerlund published 6-29-2023 updated 6-29-2023
I was asked, "How does FEMA pay my contractor to construct a new home after FEMA inspectors determined my home to be a total loss?"
Let's review briefly a little-known procedure called, "Sequence of Delivery". (FEMA's Disaster Sequence of Events FEMA_Sequence_of_Delivery.pdf)
First, FEMA is going to take care of temporary housing needs and some personal assistance for individuals and households. They are called, IA, IHP and ONA, Individual Assistance (IA), Individual and Household Program (IHP) and Other Needs Assistance (ONA).
The totals are:
Now that you know the FEMA grant numbers, you'll need to know the next step that FEMA wants you to take before you look into any other grants. FEMA is going to tell you that you have to apply to the SBA for a Disaster Assistance Loan. They are going to tell you all about the low interest rates. The SBA Office of Inspector General has published that all loans should be 0.0% interest because that is what your local municipality and state officials end up with. Only homeowners are offered interest payments with the chance of losing their homes due to loan default. Loan default for the 2016 floods was recorded to be 14 percent. SBA only tracks loan defaults for the first 12 months of the loan, typically SBA defers 6 months and sometimes 12 months of payments so the 14 percent default rate is actually low to what the true default rate would be.
Now if you can afford the additional debt, you are about to take on with an SBA loan then feel free to sign up for another mortgage payment. But I will advise against taking a loan if you are in the state that often manages disaster recovery options such as the state of Louisiana. Here we pride ourselves with grant obscurity and politicians talking about how resilient the people are. It's our states way of saying, "If you don't know how to recover after a disaster, we're not going to tell you."
If you are low-income, moderate-income and are below 80% AMI for your metropolitan area then just "Decline" the loan and tell them the loan would cause you financial hardship. You're done with FEMA and the SBA at that point.
Next up on the list would be Community Development Block Grants that are allocated by congress to HUD for distribution to each state with a presidentially approved disaster declaration request. The program is called HUD CDBG-DR or Housing and Urban Development Community Development Block Grant Disaster Recovery or CDBG-DR for short.
The house you thought FEMA was going to pay for will be covered by this grant. It will take longer because the HUD CDBG-DR program is called, "Long Term Assistance" and by long term it means the state will take it's time distributing money because of all the hoops double hoops you'll have to jump through.
The hoops start with qualification and eligibility. The state will make policy rules that they will then slip into online forms that you will complete. They just started sharing documents explaining what the forms are asking for which is very helpful. Previous forms had to basically be appealed once you were told the mistakes made by the wording of a ineligibility letter.
So to answer your question, "How will FEMA pay for my new home to be built?" They wont, it will be HUD via your states Housing department that is familiar with the CDBG programs. In Louisiana your damage estimate has to be 80% of $157.25 * Square Foot of Home. Example: If you have a 1,500 square foot home that would be $188,700 in damages as recorded by the state using the states method of estimating costs and not your local contractor buddy.
The new method of determining damages that would qualify you to have a new home constructed by the state or by your selected contract has changed since 2019. Before the state used $118/per square but this time in 2021 they opted to to include a minimum of 3' elevation into the costs even if you are not in a flood zone. That is the costs they are claiming to have to pay so they are valuing your home at the cost to construct a new home. It has nothing to do with your homes value, market value, estimated value, appraisal value. It's all about the costs in federal grant dollars to build you a new home.
Another example I like to share is neighborhoods that are not "North Shore" types and often have homes valued under $100 per square foot. The major reason old neighborhoods don't have new homes built is because the home will cost more than its market value to build. Let's say the home is in an older neighborhood and the owner is retired. The American Dream paid 30 years on the mortgage and now the home is paid off. Then the home was destroyed by hurricane Ida August 26, 2021 or maybe during the August 13, 2016 floods. In any case, now the homeowner needs to reconstruct a new home and without getting into a mortgage with a loan shark for the overages it's never going to happen. That home will fall apart day after day because there isn't enough money to pay to replace it at $157.25 per square foot.
Let's say FEMA inspector claimed damages to be roughly $157,000 on Mawmaw and Pawpaw's home that was paid off and had no insurance.
FEMA sent the maximum amount of $31,000 to Mawmaw and Pawpaw with a letter that basically says, "Good luck". When Pawpaw saw that it wasn't enough to fix the whole house he put a new door up, purchased some appliances and furniture, fixed a leak in the roof and spent the remaining $20,000 on fishing gear which made the grant a Duplication of Benefits and would have to be paid back one day.
Then the State of Louisiana Office of Community Development told PawPaw that damages were below the 80% and they would help with only repairs. The state using Xactimate Software Estimating Tool set to the lowest economy grade of materials and the lowest labor costs estimated the repairs to be roughly $157,000. The state then asked where the FEMA money went and asked Pawpaw to show what it was spent on. Nothing he spent it on was eligible according to the state of Louisiana so they listed the $31,000 as a duplication of benefits and told Pawpaw that if he wanted any grant funding, he would have to show $31,000 in repairs of the home or no additional money will be given. To say the least, the only thing Pawpaw has that is new is a bunch of fishing gear, the house was never repaired because he couldn't show $31,000 in repairs to the home. Obviously, Pawpaw wasn't aware of the program rules and swore off ever asking for help again.
I'll keep the theme going here so you're going to want to finish the story.
Mawmaw was a bit upset with the idea she had to walk on sagging floors and a roof that let more water in than the plumbing. She did a quick Google Search and found this article. She knows that FEMA and the IHP grants were used wrong so she went to the local bank and told them she might need to come up with $31,000 to get a new home. The bank verbally agreed to the terms and Mawmaw was off looking for that reconstruction grant her congressman's assistant told her able.
The problem remains, the damage estimate was not enough. Damage estimates are actually repair estimates and with a value of $157.25 per sqft no repair estimate is going to make 80% of the required costs to be eligible for a grant to replace your home.
Mawmaw knew this because she was one smart cookie. She then did a couple of searches on Google.
She found that the state was replacing MHU's that were older than 10 years of age and with at least $18,000 in damages. She did a quick call over to her friend who lives in a singlewide and asked how many sqft is it. "I don't know but it's 15' x 75' long. Guess it's close to 1,125/sf. Mawmaw then took out her Android phone and pulled her favorite Calc app. 18,000/1125=16. $16 per sqft of damage if I was in a mobile home but because I'm in a stick-built home, I'm valued at $157.25 per sqft. Knowing she didn't want to fight Governor Edwards on this she once again searched Google for the answers.
(Don't ask how Mawmaw knew to search that last one, but she did.)
This information is only to assist you in finding a path to reduce your disaster debt burden. There is no 100% way of making a profit as a homeowner, but you can reduce your overall debt burden by applying for ways to secure grants that do not have to be returned.
Your local municipality has a person assigned to your area called a Floodplan Manager and is listed in every FIRM. They are responsible for state and local ordinance enforcement when rebuilding after a disaster. They are also responsible for damage assessments that they actually don't physically do but a 3rd party does and they provide a letter of acceptance. This letter is called a "Substantial Damage Estimate" (SDE) report and is a form endorsed by FEMA and accepted by HUD and your states CDBG-DR Grantee. If your FEMA SDE is more than 50% in damages the states HUD CDBG-DR program will qualify you for reconstruction or replacement depending on the type of home. The SDE is calculated using the homes pre-storm market value with the total costs of repairs submitted by any contractor, appraiser or inspector. Once the SDE has determined you are substantially damaged and you file that letter with the states CDBG-DR program you will be allowed to apply because you now have proof of the damages from your local municipality.
Bottom line is Mawmaw got her 58% damage assessment filed with the local municipality and they sent her a letter stating that the home was substantially damaged. The CDBG-DR grant program then offered the grant funds less the $31,000 FEMA IHP grant that Pawpaw spent on all the wrong things. Mawmaw had secured the loan for the DOB and rolled it over into a 5-year mortgage after the new home was built.
So how do you get your Municipality go do the FEMA Substantial Damage Estimate? That's a question I can't answer, but I can say this, FEMA's instruction manual for the SDE software described very clearly who can do the estimate. If you would like to know more, this is your next article to read. Part 1. The data needed for your Manufactured Home Substantial Damage Estimate report. Then, if you have any questions, use the contact form at the end of the article to ask me your question. I'll be glad to assist you.
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