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HomelessHow do you pay for a house that no longer exists?

By Avi Zenilman
Posted Friday, Sept. 2, 2005, at 6:51 PM ET
FEMA can help homeowners who have a mortgage but nothing to show for it

Preliminary reports indicate that many New Orleans homeowners don't have financial protection in case of flooding, which isn't covered by most home insurance providers. If insurance can't pick up the slack, do you still have to pay a mortgage on a house that no longer exists? And if so, how?

Most mortgages must be paid back in full—whether you pay out of pocket or an insurance agency covers you. Bankrupt individuals, however, are exempt from payment.

More commonly, aid is sought from the Federal Emergency Management Administration. The first step to receiving FEMA assistance is to register your personal information with the agency via telephone or this Web site. Applicants must provide their Social Security number, insurance status, and family income, and FEMA asks that individuals provide as much contact information as possible, such as mailing address and phone number.

FEMA directs most homeowners and renters to the Small Business Administration, which gives out low-interest loans to people in declared federal disaster areas. Once a mailing address is established, the SBA sends a loan application form, along with this guide to disaster relief. The disaster recovery loans, which are capped at $200,000 for a house and $40,000 for other personal property, pay for repairs and mortgage refinancing for people without enough homeowner's or flood insurance. This interactive SBA map shows how many people took out disaster loans last year.

If the SBA determines that an applicant cannot afford a loan, FEMA can step in and pay for repairs and construction. Both programs require applicants to prove that their insurance would not cover the damage.

The process of obtaining an SBA loan or FEMA assistance often takes a while. Victims of 2004's Hurricane Ivan, for example, have until Sept. 12 to file for damages. This is because insurers and the SBA need ample time to process and verify the enormous number of damage claims before they can begin reimbursement.

Those who can't get insurance coverage or federal help in time to pay their mortgage are personally liable for their homes and are possibly vulnerable to foreclosure. Some banks have already begun to assuage these fears by granting borrowers at least a 90-day extension for their payments.

Explainer thanks Greg Bodin of the Baton Rouge Bar Association, Bank of America, and the Small Business Administration.

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Avi Zenilman is a former Slate intern.
Photograph by Joe Raedle/Getty.
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