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Some Sandy Victims Have Second Thoughts About Reopening Insurance Claims

Advocates for property owners caution that chance to get more federal money could have strings attached

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Sandy Maglio and her husband Louis stand on the back deck of their home in Beach Haven West, which was damaged during Sandy.

Sitting with her husband on the back deck of their home on a quiet cul-de-sac in the Beach Haven West section of Stafford Township, Sandy Maglio looks out on a channel where her neighbors park their recreational boats. It was this proximity to the water that first drew them to the community 45 years ago, and in the decades that followed, the thought rarely occurred to them that flooding could be a problem.

Even when Sandy was headed their way, they expected maybe six or seven inches of water -- nowhere near the 3-foot-high surge that ended up washing through their living room and undermining their foundation.

Two-and-a-half years later, Maglio has managed to elevate her house and move back in, but she still has an entire cabinet filled with important documents related to the storm.

“This is all from building, this is insurance, this is paperwork for lifting, for the lawyer, receipts ...” she explained, rifling through the stack recently.

“And then this pile is just memorabilia: all the newspaper clippings to save for the future.”

She still has some minor repairs to conduct and is in the midst of a legal battle with her contractor as a result of what she said was shoddy workmanship. Plus, she believes she was shortchanged on her federal flood insurance payout, since many of her neighbors who have similar houses and experienced similar levels of damage received about $30,000 more.

But at this point, she’s just sick of filling out forms and wants to put it all behind her so she can move on with her life and enjoy her retirement.

“I can’t look at another piece of paper!” she said, adding that several of her friends feel the same way.

FEMA’s announcement earlier this spring that it will allow 142,000 Sandy victims to reopen their flood insurance claims if they feel they were unfairly compensated was initially met with celebration from lawmakers and homeowners alike. As more details of the appeals process emerge, however, some have worried that the additional effort may not be worth the result. Excess money policyholders receive could be recaptured by the state if it’s deemed a “duplication of benefits,” and -- while FEMA has pledged a speedy resolution on its end -- the entire process, also involving the state acting on behalf of the U.S. Department of Housing and Urban Development, could drag on for months. Storm-victim advocates are urging the federal government to allow homeowners to keep any additional flood insurance payments they receive.

As of last Friday -- just a few weeks after sending the initial round of letters offering to reopen policyholder claims -- FEMA reported that nearly 3,100 storm victims had contacted its Sandy Claims Review Center, 2,243 of whom were initially deemed eligible and are currently in the review process to determine if they should be awarded additional insurance money.

But some homeowners got the sense from reading that letter that there are devils hidden in the details.

"The review may result in a determination that you previously received an overpayment or a duplicated benefit. Federal law may require you to repay an overpayment to the U.S. Treasury," the letter stated.

In Maglio’s case, rebuilding her home meant she had to dip into her savings, so getting the extra $30,000 she feels she’s owed would be significant.

“I could sleep a little better,” she said.

Still, the threat of another government agency swooping in and asking her to pay back some or all of this additional money -- a process officially called “recoupment” but often referred to derisively as “clawback” -- made her decide not to bother.

“If I do get the money, I’ll only have to return it. If they give it to me here, I’ll have to give it back there. So it’s not worth the paperwork,” she said. Her concerns are borne out by a statement from the NJ Department of Community Affairs, which oversees the delivery of federal Community Development Block Grant Sandy aid to storm victims, including the popular Reconstruction, Rehabilitation, Elevation and Mitigation grants, which offer up to $150,000 for primary residents to repair their homes.

“By federal law, CDBG Disaster Recovery monies can only be used as funding of last resort to fill the unmet-needs gap between the cost to rebuild a home and other benefits the homeowner has received to rebuild their residence,” DCA spokeswoman Lisa Ryan explained in an email.

“The RREM Program will conduct a review as part of the grant-closeout process to determine if the homeowner received additional benefits after the grant agreement was signed [such as additional flood insurance money] and if so, if these additional benefits resulted in a change to the grant award. If it’s determined that RREM funds already disbursed exceed the recalculated grant award based on additional benefits received,” she said, the state is required by federal law to take action to recover the excess funds.

Under normal circumstances, said Sue Marticek with the Ocean County Long Term Recovery Group, that sequence of delivery -- in which flood insurance is paid out first and RREM money is considered a funding of last resort -- would make sense, but the underpayments and widespread allegations of fraud in the National Flood Insurance Program following Sandy have thrown that process into disarray.

“I think there’s a fair argument that the sequence of delivery has been broken by the federal government,” she said. “It seems to me that there is a fair argument to count none of the new money coming in as a duplication of benefits.” The problem, she explained, is that with all the added expenses like rental costs that displaced homeowners have had to face, any new money they would receive now doesn’t have the same value it would have had earlier in the recovery.

Melissa Luckman, a staff attorney at Touro Law Center’s Disaster Relief Clinic, agrees. While it may sound fair for the state to ask storm victims to return money that -- according to official calculations -- is more than they need to rebuild, those official calculations often fail to account for all the true expenses of what it costs to be affected by a major storm.

“Maybe some contractors came in and did poor work that had to be redone, or people who did repairs then found out they had to elevate their house,” she said. “When you elevate, it can destroy some of the repairs that were done, so they’d have to repair their house again. So I think a lot of people are out of pocket more money than they have gotten.”

Additionally, she said, the reports documenting individual homeowners’ unmet needs were based on what construction would cost if it was done right at the average price by a contractor.

“That is not how repairs were made after the storm,” she said. “Contractors were charging inordinate amounts of money. A lot of times they wanted to get paid in cash. I don’t think that these state programs really accounted for how much labor cost and how much materials cost.”

Luckman and others including attorneys representing policyholders have been pushing for the federal government to instruct states operating on its behalf not to ask storm victims to return additional flood insurance payments and to find a way to exclude that money from “duplication of benefits” regulations. Among the proposals that have been presented are allowing that funding to be considered compensation for “pain and suffering” or letting it go toward paying off a homeowner’s mortgage.

“I think everyone’s really trying to put pressure on HUD,” she said, adding that the department seems to be listening but has yet to budge on the matter. In the meantime, she’s advising her clients that this is a true risk.

What’s more, she said, “there’s the potential for investigations and audits to go on for years. There’s no statute of limitations for that. So that always has to be a concern. When I advise people, I always tell them you have to know what your state grant has given you, what it covers. And you need to be realistic about how much more you can potentially get from flood insurance.”

Not everyone is concerned, though.

“There really is no downside. You should definitely reopen your case,” said George Kasimos, leader of the citizens’ activist group Stop FEMA Now. From his standpoint, storm victims have nothing to lose. In the best-case scenario, he explained, any new money a homeowner receives that’s not considered a duplication of benefits is a windfall. In the worst case, a homeowner could be forced to repay all additional flood insurance money they get -- minus legal expenses -- so they basically break even.

“Let’s say you’ve got $50,000 additional flood-insurance money,” he said. “Just keep it in a bank account. It’s your money today unless RREM asks for it. And then when you close out of the RREM program, let them know. Worst case, you work it out there. That’s not going to stop you from continuing to rebuild at all.”

Two-and-a-half years after Sandy, he acknowledged that many storm victims feel worn down and are ready to move on. Yet he thinks it’s important for people who feel they were shortchanged to stand up for their rights.

“If we only open up 500 claims out of everybody, FEMA’s going to come back and say, ‘We made some small mistakes. No big deal,’” he said. “But if we open up tens of thousands of claims and instead of them having to refund $15 or 20 million, it’s $500 million or a billion dollars -- some big number -- then somebody in Congress is going to say, ‘These people are incompetent. There’s more significant fraud going on than we even thought.’ That’s what I want to get out.”

Resources

If you’re a storm victim seeking more information on the pros and cons of reopening your flood-insurance claim, check out the video of this workshop the Touro Law Center held recently on the topic.

Also, call (844) 308-2053 for a list of dates and locations of upcoming free clinics storm-victim advocacy groups are planning to help people navigate their flood insurance appeals. These include Saturday, June 13, in Toms River; Monday, June 15, in Brick; and Saturday, June 20, in Moonachie.

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