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    Caveat Emptor: What Flood Victims Should Anticipate

    By wws on Mon, 06/16/2008 - 9:35pm |
    This I know from personal experience; I lost a waterfront "dream house" to Hurricane Ivan's tidal surge in 2004:
    The flood damage itself is, incredibly, only the beginning of the homeowners' nightmare. And it is a third circle of hell nightmare that -- unless there is an enormous hue and cry from the public -- will devastate, and sometimes bankrupt, the homeowner, in phases, over a period of time that can last for up to three years.

    Why? Because far worse than the natural disaster itself, which "merely" trashes a house and rids the homeowner of everything he, or she, has inherited or accumulated over time, is the coldly-calculated, carefully-controlled practice of both wind and flood insurers to delay and, if possible, to deny coverage -- even on policies that were paid-in-full....which ultimately trashes innumerable lives, sometimes irreparably.

    What about FEMA? Forget help from the government -- FEMA will be AWOL for a long time and, when the representatives show up, they will be volunteers, not paid staffers and, in consequence, despite their good hearts they will be disorganized and therefore unhelpful in meaningful terms.

    Here is the bottom line, and it is sobering: flood victims who want to deal in reality would be wise to assume that they will not get one penny from their insurers for at least a year. And they will get it then, only if they agree to a payoff that is a fraction of the value of their policy.
    Therefore, flood victims whose houses are lost or uninhabitable should be prepared to pay -- out of pocket, or from savings, or from a high interest loan -- for the following expenses: 1) regular mortgage payments and property taxes (just because the house is gone or you can't live there doesn't mean those costs are not owed); 2) the inflated rent on an alternative house or apartment plus their utilities while you are in transition; 3) cutthroat fees from clean-up crews, engineering firms, surveyors and independent adjusters; 4) replacement costs for necessities from cars to clothing.  (They don't tell you to 'save your receipts' for nothing.)
    And remember this: all these costs are undertaken at your own risk. There is no guarantee that your insurer will pay, ever. Some insurers declare "insolvency" so that their claims may be transferred to a state agency pool that will eventually pay, if you are lucky, twenty cents on the dollar, excluding household possessions, for which they will pay nothing, no matter what the original policy said.)
    So, if flood victims do not have an offer of settlement after a year, they must decide whether or not to hire a lawyer or join a class action suit. Individual lawyers must be paid upfront; they will not do contingency fees on flood cases. Class action lawyers will accept contingency fees, but these payouts can take years and the lawyers get up to 33%.
    Hyberbolic version? Not at all. It is what is. Really.

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    I have recommended my own post because flood victims have a "need to know." I have former neighbors, who held out for a payment in full, who have not been paid anything, to date, four years later.


    by wwstaebler (not verified) on Mon, 06/16/2008 - 9:57pm

    Thanks for posting this. Earlier today burnedoutdem was asking about flood insurance and FEMA. I hope burnedoutdem sees this post, because it's important and has some very real answers.

    Sorry you came to learn about these very real answers the hard way, wwstaebler.

    Recommended. People should know about this.


    by LisB (not verified) on Mon, 06/16/2008 - 10:28pm

    Well, that was depressing. Very useful, but depressing.


    by kgb999 (not verified) on Mon, 06/16/2008 - 11:20pm

    Oh, I'm glad you made this into a separate post - it was a great comment on my post, and I was sad to see it slip into the unknowns. Thank you for your explanation - twice! :)


    by burnedoutdem (not verified) on Mon, 06/16/2008 - 11:22pm

    Thanks, LisB. Fortunately, I don't *need* this info just now, but I was trying to understand what people will face.


    Additionally, wwstaebler, you mentioned that often when they pay out possessions are excluded. Is that even if your policy is for structure and contents? I'm about to buy a policy and am trying to decide if it's worth the extra premium if they won't pay out in the end.


    by burnedoutdem (not verified) on Mon, 06/16/2008 - 11:25pm

    My wind/structure/household contents insurer declared "insolvency" three days after the hurricane, which automatically put my claim into the state pool, which immedidately announced (really because they had to -- given their fund versus the nunmber of claims) that no monies would be paid for personal possessions/household goods. My original policy called for $175K in household goods with a fine arts rider (OK I stretched it). My premiums were paid. In the event, didn't matter. You can't argue with a state agency.
    BTW, if it had not been for a very kind man from the state agency, who just happened to show up,without prior notice, a year after the storm on a blistering July day when I happebed to be back at my ruined house to purge the remaining remnants, I might well still be unpaid. Seeing me there, sweating bullets, still trying a year later, evoked his personal conscience. Not only did he promptly approve my state pool payment, he also sent a censurious email, with a JPEG of the water line and black mold attached, to Lloyds of London; it it, he asked them why they had not paid my claim, when the proof was before them. Two months later, they offered me 70%, which I accepted.


    by wwstaebler (not verified) on Tue, 06/17/2008 - 12:04am

    Thanks, LisB. We all have our mettle tests. This was one of mine. I read about one of yours and felt humbled by your selfless clear thinking.


    by wwstaebler (not verified) on Tue, 06/17/2008 - 12:33am

    Great post. Although it's specific, it deals with a greater issue:

    "Hi! We're here from the government... and we want to help!"

    Want to see more madness? The Dept of Homeland Security -- which is strapped for cash, believe it or not -- does this with taxpayer dollars:

    http://www.albuquerquebaseball.com/schedule/promos/index.html?date=2008-4-20


    by clearthinker (not verified) on Tue, 06/17/2008 - 1:18am

    Further notes for flood victims:
    1) Keep in mind that most houses that are catastrophically water-damaged and which remain empty (if boarded-up) for a year or more will have to be torn down due to deteriorating structural issues and irreversible infiltration of molds. Even if you finally receive some insurance re-imbursement and want to risk renovation, if FEMA and/or the county health department "condemned" it, as part of a post-storm survey, you have no recourse. So, off the top, you will have to subtract $12-20K from your payout for demolition, or face escalating fines for non-compliance from the county plus the cost of demolition. (Costs are high because you can only use a licensed demo company officially approved by the county -- no short-cuts allowed.)
    2) Be aware that your credit rating may be affected, negatively -- even if you have a great history and continue to make all your payments, every month. That is because your property will be re-appraised by the mortgage company and significantly devalued, at the same time your expenses are doubled or tripled; therefore, your debt to asset ratio may be thrown into a higher risk category.
    3) The mortgage company may then try to coerce you into a complete payoff, or, announce that, from now on, you are required to pay a higher rate of interest -- even on a fixed rate loan. (You can fight this and win, but it is a tough fight with lots of bureaucracy to overcome, repeatedly.)
    4) Ditto for credit card companies, who will raise your interest rate even if you have paid on the nose for years. This, too, is a fight you can win, but you have to fight it, and pay the higher rate in the interim.
    Natural disasters plus opportunistic bureaucracy: the gift that keeps on giving.
    5) Accept that you will not be able to sell your property, even as a building lot, for a very long time. Even in a strong market, the inventory of properties for sale after a natural disaster will be glutted and it will take years for that surplus inventory to be re-absorbed.


    by wwstaebler (not verified) on Tue, 06/17/2008 - 4:27pm

    I just love the fact that insurance companies jack up their premiums for flood / tornado / hurricane / earthquake coverage, then when one of these disasters hits they go running to the government for bankruptcy protection because they can't pay off all the claims.

    So not only does the consumer get raped on their premiums, they get raped when their taxes pay for their own insurance claims.

    My God, what an absolute SCAM the insurance industry is.


    by RobbyLove (not verified) on Tue, 06/17/2008 - 5:48pm