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Mortgage Servicing and Loan Modifications: 12.1.3.5.3 Monitoring relief funds and allocation

After a disaster occurs, the recovery landscape inherently continues changing over time as needs are identified, reduced, resolved, or altered—for example, flood and homeowner insurance issues that occur in the immediate aftermath of a disaster may become less of a legal need if federal Community Development Block Grant Disaster Recovery (CDBG-DR) funds become available to pay for home repairs.45

Mortgage Servicing and Loan Modifications: 12.1.4.1.4 Background for addressing FEMA assistance legal issues

Because of issues related to FEMA applications, FEMA denials, FEMA collection actions and a variety of problems related to FEMA recertification, clients are often in need of FEMA legal assistance at the outset of the disaster and for several years afterward. Advocates can successfully address improper FEMA denials through preparation and attention to detail. Similarly, collection actions can be ceased and reversed, but require some knowledge of the relevant laws governing the process.

Mortgage Servicing and Loan Modifications: 12.1.4.1.6 Applicant failure to recertify

The second stage of FEMA legal issues generally starts about two months after the disaster and spans the first few years of disaster recovery. These issues mostly involve applicants who received some form of temporary cash assistance, typically rental or housing-related, and FEMA stops providing assistance because the person failed to recertify.78 These applicants often receive notices that require timely responses but, due to stress or misunderstandings, applicants either do not respond properly or do not respond at all.

Mortgage Servicing and Loan Modifications: 12.1.4.1.7 Overpayments and recoupment

The third stage of FEMA legal issues involves FEMA repayment demands and recoupments (federal collections) for overpayments.80 Any improper financial payment to an applicant is referred to as an overpayment, whether it refers to a portion of the FEMA award or the entire FEMA award. These issues arise about four months to one year after the disaster and continue for up to three years or longer.

Mortgage Servicing and Loan Modifications: 12.1.4.2.1 Insurance basics

Most homeowners with mortgages are required to maintain homeowner insurance and, if the property is in a designated flood zone, flood insurance. Homeowners without mortgages generally are not required to maintain any form of insurance. If individuals are insured, they should file insurance claims as soon as possible for any damage to their home and personal property.

Mortgage Servicing and Loan Modifications: 12.1.4.2.3 Flood insurance

Most flood insurance policies in the United States are governed by the National Flood Insurance Program (NFIP) which was created by the National Flood Insurance Act of 1968 (NFIA).95 However, in 2019, the federal government allowed private insurers to create their own flood insurance policies subject to regulation.96 Because the NFIP has a maximum policy limit of $250,000 for building coverage, some homeowners in flood-prone areas obtain surplus lines insurance to protect against losses that might e

Mortgage Servicing and Loan Modifications: 12.1.4.3.1 Generally

After a disaster, individuals with damaged homes quickly begin looking for home repair contractors who can restore their home back to normal. Due to trauma and shock, homeowners are particularly vulnerable to smooth-talking contractors who promise unrealistic timeframes for completing repair work, often at unrealistically low prices. Even if a homeowner is fortunate enough to hire a reputable and ethical contractor, the stressors on under-resourced contractors can result in issues with the timely completion and quality of repairs.101

Mortgage Servicing and Loan Modifications: 12.1.4.3.2 Scam home repair contractors

Storm-chasers show up quickly after a disaster. They track media coverage for when the disaster will hit and start planning in advance. Often, they go door-to-door offering services in affected neighborhoods, create flyers and materials advertising their services, and may have professional-looking business websites or Facebook pages with phony customer reviews.

Mortgage Servicing and Loan Modifications: 12.1.4.3.3 Home repair contractors who are not scammers

Not all home repair contractors offering services after a disaster are scammers. Many states already have existing and reputable home repair contractors that offer services after a disaster. Most issues with reputable contractors arise generally because the contractor’s good reputation leads to an influx of clients and, with limited availability of staff resources and building materials, the timeframe for repairs becomes an indefinite delay.

Mortgage Servicing and Loan Modifications: 12.1.4.4 Code Enforcement

Municipal building code issues are an unavoidable aspect of disaster recovery for homeowners.107 Building code issues arise if the municipal code office or inspectors are unavailable due to the disaster, or if shoddy work from the contractor prevents the local inspector from issuing a required inspection certificate for repairs to continue.

Mortgage Servicing and Loan Modifications: 12.1.4.5 State and Local Grant Programs

State and local grant programs provide critical additional funds and resources for disaster survivor relief, due to the discussed shortfalls that can occur even after insurance and FEMA fund payouts. After a major disaster declaration from FEMA, Congress may appropriate Community Development Block Grant Disaster Recovery (CDBG-DR) funds for the affected areas. States and local governments from those areas can apply for CDBG-DR funding to create housing repair programs, rental assistance programs, personal property and appliance replacement funds, and other services.

Mortgage Servicing and Loan Modifications: 12.1.5 Practice Pointers

  • • Help your client (and yourself) by organizing the client documents by time and date. Scanning the documents and then numbering them in chronological order can create order from chaos, and the client or support staff may be able to assist you with creating a simple document index to organize the file.
  • • From the first conversation, whether at intake or the first client appointment, ask the client to start writing down their narrative.

Mortgage Servicing and Loan Modifications: 12.1.6.1 Domino Effect of Legal Issues after a Disaster

Be aware of how and when post-disaster legal issues evolve over time, and the interconnectedness between all of them. All the issues contribute to and inform each other, regardless of whether a survivor seeks assistance immediately after a disaster or first seeks assistance three years after the disaster because of a significant legal crisis that was caused or contributed to by the disaster. This is especially common when individuals lost their homes or employment due to disaster.

Mortgage Servicing and Loan Modifications: 12.2.2.1 Sources of Information

The major sources for information regarding Fannie Mae relief are Fannie Mae’s Single-Family Servicing Guide (Servicing Guide)114 and the Fannie Mae website.115 In addition, Fannie Mae periodically issues Servicing Guide announcements and lender letters116 and disaster-related press releases117 that provide special announcements and updates or changes to previously announced

Mortgage Servicing and Loan Modifications: 12.2.2.3 Late Charge Suspension

Past versions of Fannie Mae’s Servicing Guide have contained a requirement for servicers to waive late charges caused when a borrower “incurred additional expenses or loss of income due to the disaster or needs additional time to receive a pending insurance settlement.”121 However, the current version of the Servicing Guide addresses only required suspension of assessment or collection of late charges during forbearance.122