Let’s say a minor flood comes by and inundates several houses. If the homeowners don’t have flood insurance, they are just SOL and they have to pay off a worthless house. In the end, we all know that they will probably end up living in cardboard boxes and dying during a cold winter night 2 blocks from a soup kitchen.
But if it is a major flood, and it covers several counties, then usually the Governor requests the Federal Government to label it a “Disaster Area.” This qualifies it for certain amounts of federal relief funding.
What does this mean? I assume FEMA shows up and tries to handle short-term disaster relief. But does the federal government give people money to rebuild? I’ve always been under the presumption (maybe incorrectly) that they act like an insurance company and pay for re-construction. If so, this doesn’t sound very fair.
If a flood ruins 3 houses, the owners are screwed. If the flood ruins 10,000 houses, then suddenly they all get a free ride.
Not necessarily. There could be funding for reconstruction, but that would be a separate deal. Declaring a disaster simply triggers the initial response, and FEMA is required to do a damage assessment. By law, spending to rebuild is neither automatic nor is it determined by a specific formula. Everything is done on a case-by-case basis, and requires a vote by congress.
FEMA has a FAQ that’s not exhaustive, but a good starting point. This press release, after the tornadoes in Alabama this spring, gives a good example of how the process works.
If it’s a minor flood, then the houses probably aren’t worthless. If it’s a major flood, then it was probably a designated flood zone and they were required to carry flood insurance. On the off chance that it was a freak flood that nobody saw coming, the owners don’t have to pay off a worthless house; they can default on the mortgage, accept the hit to their credit rating for the next few years, and get on with their lives.