Homeowners with homes devastated by superstorm Sandy can take advantage of a decades-old Federal Emergency Management Agency grant program that buys damaged property in flood-ravaged areas. And although corporate executives and business owners may not know it, their companies may be eligible, too.
FEMA’s Hazard Mitigation Grant Program (HMGP) indeed may be the way to go, rather than pursuing insurance claims under the National Flood Insurance Program. The HMGP is commonly called a “buyout” program because a mix of federal and other funds are used to buy the damaged property from the home or business owner, demolish it, and return the land to its natural state.
That takes the damaged structure out of the floodplain and eliminates the risk of future personal injury or property damage. The property owner can take the money from the sale, use it to pay off the mortgage, and relocate elsewhere — usually on higher ground. (According to Title 44 of the Code of Federal Regulations, a floodplain is any land area susceptible to being inundated by water from any source.)
Marshall Gilinsky, an insurance-recovery attorney at Anderson, Kill, & Olick who represented some Vermont homeowners after Hurricane Irene, says the program may be a good option for businesses of all sizes that suffered extensive damage from Sandy and are located in a floodplain. “I don’t know historically how many businesses have availed themselves of it. But I bet there will be a number of businesses for whom this might be their best option from an economic perspective,” he says, adding that it is a “business judgment. It all comes down to the relocation and the displacement associated with that.”
Businesses that have relatively low limits of coverage under their flood-insurance policies — coverage inadequate to the task of rebuilding — may find it a viable solution. The key is whether the damaged structure qualifies, Gilinsky says. The simplest determinations are whether the property is located in a floodplain and that the cost to repair or replace the existing damage is at least 50% of the prestorm fair-market value of the structure.
After Hurricane Irene, says Gilinsky, he worked with homeowners having difficulty collecting in full on their flood-insurance policies and looking at homes badly damaged by flood. Moreover, the flood recovery from the National Flood Insurance Program would have left them with a house they were unable to repair to the extent they would have liked. The grant option, on the other hand, afforded them a way to buy a new house in a better location, he says.
Small or large businesses alike may qualify under this standard, depending on the extent of the damage, he adds. In general, the worse the damage is, the more likely it is that the business owner will want to relocate and qualify.
For those businesses that want to use the HMGP to relocate, another consideration may be the time it takes to get the grant money. “It has been over a year since Irene, and grant money is only now on the verge of being disbursed,” the lawyer says. Business owners interested in pursuing the option must approach officials of the town where the company is located, because it’s the town or city, rather than the business owner, that applies for the grant.
To apply, the business owner fills out a grant application with the town or city, which signs off on the plan. The town buys the property from the owner and pays for the transaction using grant money — which tends to be 75% from FEMA and 25% from matching, nongovernment grants, such as community-development grants. The town then agrees not to rebuild on the property. Transaction costs, including site investigations for hazardous materials and demolition and closing fees, are included in the grant money.
One reason towns may decide not to participate is the fear of losing businesses. A reasonable solution might be that, as part of the purchase-and-sale agreement, the business would relocate within the town, says Gilinsky.