When an area is devastated by a disaster, such as flooding, wildfires, or even massive hurricanes, the United States government will step in and make a proclamation, declaring the region a disaster area. The decision to flag these heaviest-hit areas allows the government to quickly funnel money into relief, repairs, and rebuilding.
Occasionally, a disaster will occur just before or during the purchase process, prompting a borrower to wonder if it's really a good idea to buy a home somewhere that has been recently affected by such a massive disaster. After all, what if the property was damaged, or worse — what if it happens again?
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Fortunately, not every declaration will spell disaster for your dreams of homeownership. Hunker spoke with two real estate pros to find out everything you need to know about closing on a home in a disaster area.
What Is a Federally Declared Disaster Area?
According to Giuseppe Pistone, CEO, Century 21 Keystone Realty, this designation refers to an area that has been declared a disaster area by the president or a federal agency. "That area will usually qualify for federal assistance for relief supplies, temporary housing assistance, loan assistance, or other government aid," he tells Hunker.
What Happens to Your Loan in Process?
If you already have a mortgage application in process when the disaster is declared, Ray "Skip" Velasquez, senior loan officer of Premier Home Loans tells Hunker it's possible that your closing may be delayed a bit. "In a worst-case scenario, it can take years to remedy," he says, adding that sometimes it's much faster. "For example, when Hurricane Katrina hit Louisiana, the entire area had to be reevaluated and rezoned, and infrastructure had to be repaired before the green light came on to be able to close on loans," he says. "As long as the home passes the newly required inspection, any insurance changes are met, and the lender is satisfied, it can continue."
You’ll Have to Make Repairs if Your Property Was Impacted
If your home has sustained damage as a result of the disaster, there are a few extra steps you'll need to take before you can make it to the closing table. "The collateral (the home) is the most important thing when it comes to being able to close,'' Velasquez says. "If the collateral was damaged by any circumstance, it would have to be repaired and inspected prior to closing. If you lose a shingle and it causes a water leak in the house, even if you are outside of a disaster area, it still must be fixed prior to closing to protect the investor and the new buyer of the home."
If your property is located in an area where several homes were damaged, finding someone to take on the job (and the supplies needed to make the fixes) could also take longer than normal.
You May Have New Insurance Requirements
If a storm is still incoming and your property is located within the "cone," (referring to the path a storm is expected to take across a swath of land) insurance companies will not bind insurance, Pistone tells Hunker. "I would recommend that the buyer(s) wait until the storm has passed and then have an inspection done again to determine if the property has sustained any damage," he says.
If the disaster has already passed and you've verified that the property didn't sustain damage, you may be worried about the possible long-term consequences. "Keep in mind that tropical storms and hurricanes don't hit only specific areas," he says. "They [are] unpredictable and can make landfall anywhere." That being said, in areas that have been hit frequently or have sustained ongoing damage from multiple storms, there may be additional insurance requirements (like hurricane or flood insurance policies), which could cost you more money over time.
Owning a Home in a Recently Declared Disaster Area May Present Some Unique Challenges
Once a disaster strikes, Pistone says contractors will come from all over, knowing that there is plenty of work to be had. "I would check their references, ask if they are licensed and insured, and then verify that it's true." Unfortunately, he says that this is the time when scammers can come out in full force.
Even if your home was left relatively unscathed, you may still want to hire a contractor to do some work for a remodel or make minor repairs on some unrelated issue. Finding help could be a little bit harder if you're living in a disaster area where all those resources may have been otherwise diverted.
Find Out if Your Property Is Located in a Disaster Area
If you're curious about whether the property you're eyeing is located in a disaster area, Pistone says you can do a quick search on the FEMA website to find out. "I recommend doing your homework," he says. "Speak to your agent, your lender, your insurance company, and if need be, your attorney." Most important, redo any inspections that were completed prior to the disaster.
"It is important to be patient," Velasquez explains. "There is little to nothing a lender can do to speed up repairs, the government machine, and they can't predict the outcome," he tells Hunker, adding that in some cases (especially when it comes to massive storms or flooding rains), the rezoning can lead to a change in the 100-year flood zone maps, thereby requiring flood insurance. "In short, there will be a few obstacles and roadblocks. The key is to work with a lender and title company that will keep you informed and work on your behalf."