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Left high and dry by insurers, homeowners reluctantly borrow Sandy rebuilding funds

Small Business Administration loans bail out shore residents surprised to learn policies paid far less than needed

After Sandy’s floodwaters swept into Catherine Mulholland’s Breezy Point home and destroyed her first floor, her rough calculations led her to expect a check for at least $100,000 from her National Flood Insurance Program policy, which maxes out at $250,000. So she was surprised when she only received $48,000 — just enough, she says, to cover cleanup costs.

“Every human being that I talk to agrees with me that it’s not enough,” she said.

Four months out from Sandy, Mulholland is far from the only one who has found herself in the kind of position she didn’t expect after faithfully paying for flood insurance: stuck with unrepaired damage and left to track down other sources of funding. She got close to $6,000 from FEMA to pay rent elsewhere after the storm, and a few hundred dollars more to help with cleaning.

Before Christmas, she reluctantly accepted a $49,400 U.S. Small Business Administration disaster loan in order to cover the cost of all the other work, including new appliances and fixtures.

That loan, with an interest rate of less than 2 percent, should be enough to pay for all the restoration work, but accepting it was a hard decision to make. As a single mother of a 14-year-old, she didn’t want to take on more debt. And to get the loan, she had to put her house up as collateral. But it was either that or “live without a kitchen,” she explains.

“It changes things for the future with what my son and I will be able to do,” she said.

FEMA recovery centers and SBA field offices around the New York region’s coastal areas are seeing a steady flow of applicants like Mulholland: homeowners who had flood insurance, but received much smaller checks than they’d anticipated. For some, it’s because they miscalculated or misunderstood what the insurance would cover. Others are hitting unanticipated technicalities with their insurers. Still others’ funds are sitting in escrow accounts with their mortgage lenders as their bills pile up.

Staten Island resident Kathleen Palazzolla had heavy damage to her home’s first floor…

…but her insurer calls it a basement and won’t pay for most of its restoration. Photos: Kathleen Palazzola

Clashes between insurance companies and Sandy victims have become enough of a problem that Gov. Andrew Cuomo announced last week that the New York State Department of Financial Services has launched a voluntary mediation program to aid in negotiations between companies and homeowners who are disputing their claims or disagree with denials. The department is also offering opportunities for homeowners waiting on insurance settlement funds to meet one-on-one with bank and mortgage company representatives and unclog funds in escrow.

“Nobody is getting what they wanted … whether they had flood insurance or not,” said Gale Berg, director of pro bono attorney activities for the Nassau County Bar Association. The association has held 17 clinics to offer advice to Sandy victims and drawn more than 700 people.

Many who had insurance are still waiting on checks, Berg said, or facing issues they didn’t anticipate. Areas once considered above the flood line have changed, for example, with nobody informing affected residents — leaving many inadequately insured for their level of flood risk.

In cases where a home was in foreclosure, Berg said, checks are sometimes going to banks, which then dictate how homeowners must spend them. Robert Galassi, an SBA spokesperson who has talked with many of the people coming through recovery centers over the past four months, said some homeowners were underinsured because they never adjusted their flood insurance to take into account the changing value of their property over the years.

Whatever the reasons for the lack of rebuilding funds, homeowners are now confronting one option still open to them: a low-interest loan from the federal government. Last week, at Cuomo’s request, the federal government agreed to extend the application until March 29 for disaster assistance. The Small Business Administration loan program is by far the best-funded resource, bolstered in January by an additional $799 million to the SBA from Congress.

Property owners can apply for a loan of up to $200,000 to pay to repair structural damage. Businesses and nonprofits may receive up to $2 million. The loans have rates as low as about 1.7 percent, and terms of up to 30 years.

As of Feb. 22, the SBA had approved 23,741 disaster loans totaling $1.6 billion in Sandy-affected states, with $1 billion of that money going to New York State residents. Early figures from the administration indicated that in New York, four in five applicants for the loans were approved.

Galassi urged anyone still deciding whether to apply for one of the loans to go for it, even if they are still negotiating an insurance settlement with their banks.

Homeowners and shops in Long Beach are being directed to borrow from the Small Business Administration to cover rebuilding costs where insurance won’t pay. Photo: Allison Maier

“Don’t wait,” he said, noting that businesses and homeowners who are accepted for loans have six months after to determine whether or not they actually want to take them.

But for some people, like Staten Island resident Kathleen Palazzolla, the price of an SBA loan simply isn’t worth it. It would mean purchasing flood insurance for every floor of her four-story town house — and a lien on her property.

Living in Evacuation Zone A, she’d paid for flood insurance for all 16 years she’s had her house, which is on a bit of a hill, so it had never flooded before Sandy arrived and brought five feet of water inside. In December, she’d received a $10,000 advance from her insurance company, Travelers, following a visit from a representative to assess the damage.

“That check was gone in about five minutes,” she said, the funds handed to contractors who replaced sheetrock and molding.

Then, about two weeks ago, she said, she received a call from the same Travelers representative who came to her property the first time, telling her the company had made a mistake in giving her the advance and she needed to return $8,000. Their reasoning, she said, was that the first floor should have been classified as basement — which makes no sense to her, since it’s above ground and has sliding glass doors leading out to her deck.

She’s found support in her local Travelers agent and says she is planning to take legal action if that’s what’s needed to solve the problem, but the future of her claim — which was originally set to total about $12,000 — is up in the air. She was told she’d receive a letter formally detailing the changes, but as of March 4, she was still waiting. A Travelers spokesperson could not comment on the situation.

What adds insult to injury, she says, is that she’s watched other people in her neighborhood receive checks from FEMA to help pay for their damage, while FEMA has denied her aid because she had flood insurance.

“You think you only have so many tears left,” she said.

Paradoxically, it’s a lot harder for many small businesses to get loans from the Small Business Administration. Businesses have obtained just 3 percent of the loans so far, totaling less than 8 percent of the dollar value.

Deborah Turhan owns a dry cleaner in Long Beach with her husband and has surveyed fellow businesses owners to get a sense of their struggles. SBA loans require extensive documentation during the application process, and some business owners lost those papers in Sandy’s floodwaters, she said. Many can’t get qualified for loans because they were already struggling financially. And businesses that have been able to open again won’t be able to get back on their feet until their customer base in the surrounding neighborhoods can move back home.

The SBA does offer an economic injury disaster loan to businesses that lost customers as a result of the storm. The deadline to apply for those is later — July 31.

Johanna Sofield notes the eeriness families feel when they finally move back into their homes, only to realize that all the other houses sit dark. Sofield runs the Long Beach Christmas Angel fundraiser for needy families and has been working to assist her community after the storm. She said many homeowners got advances of between $5,000 and $10,000 from their insurance companies immediately after Sandy, but continue to wait for any additional checks.

As they slog through a degrading mass of paperwork from insurers and government agencies, probing every detail of their finances, well-meaning homeowners feel like they’re being punished, she laments.

Said Sofield, “They need to treat us like the responsible citizens we are.”

Additional reporting by Nathaniel Herz

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