Buyout Programs Leave Homeowners and Renters at a Loss

Programs that offer federal money to buy out flooded homes would seem like a godsend to victims of natural disasters. Homeowners could rid themselves of severely damaged properties and move to safer areas; meanwhile, communities would make themselves more resilient to future flooding by returning developed land to its natural state.

But federal buyout programs can be fraught with challenges, and may even present liabilities to the cities and towns that implement them, including claims that buyout money has been distributed unfairly, according to recent research by Rhode Island Sea Grant Law Fellow Sarah Friedman.

Disaster relief funding from federal agencies, including the Federal Emergency Management Agency (FEMA) and the U.S. Department of Housing and Urban Development (HUD), is distributed after disasters like flooding and may be used for buyouts. Though similar in many ways, each program has different eligibility requirements and methods for calculating property values. In Rhode Island, major flooding in 2010 caused property damage and FEMA funding was used to purchase a few properties in Cumberland, Cranston, Westerly, and Johnston.

Getting the Money in Good Time

Friedman used Westerly’s program as an example of some of the issues with buyout programs that make them less successful than they could be.

“The town targeted a particular neighborhood that was specifically really hard hit by these floods and the property owners were spoken to individually about their interest in participating in the program,” Friedman said. Westerly applied for the buyout funding, but it took two years for FEMA to award the money and another two years to implement the program.

“Federal money generally only becomes available after a disaster,” said Read Porter, senior staff attorney for the Rhode Island Sea Grant Legal Program and Marine Affairs Institute at Roger Williams University, who supervised Friedman’s work. “The trick is being ready when the disaster comes so that you can put in the application … so that you can get the money in good time [to] consummate the buyout before the person’s gotten fed up and just fixed their house.”

That was what happened in Westerly, Friedman said. By the time four years had passed, “half the people who had originally volunteered to be a part of the program had opted out. So [Westerly] eventually [was] able to purchase only four properties, and three of those were rental properties, which resulted in those tenants in those properties being displaced.”

In the program’s implementation, it appeared that tenants were adversely affected while property owners benefited. Issues like this, where one group is favored over another in some way, Friedman said, mean that buyout programs must be carefully considered  or “they risk violating federal or state civil rights laws.”

 

Buyout Equity

Other challenges Friedman uncovered in her research included the issue of fair notice. In a different case that is currently being litigated, the officials making selections of properties for buyout were accused of not allowing everyone who might be eligible for the program to participate.

Plaintiffs said that the officials did not communicate the buyout opportunity with all potential participants but rather used the program to target specific properties and homeowners to promote their state income tax base and real estate values. And New York City was sued over a disaster relief program following Superstorm Sandy by the Center for Independence of the Disabled, which successfully claimed the city made it difficult for disabled people to obtain relief through the program.

To create a more equitable buyout program, Friedman suggested communities “reach out to as many people as possible by producing different formats of information to accommodate different needs and providing translators to make sure the information is clear.”

“Another issue would be developing solutions to deal with long delays in the buyout process,” Friedman added, which can mean that lower-income property owners, who can’t afford to wait several years for relief, are unable to participate. “Developing programs before the disaster occurs can help to get the process moving before there actually is a disaster,” she said.

Friedman’s work was undertaken for Rhode Island Housing, which was particularly concerned about equity issues in buyout program implementation. She is continuing her research this spring, looking at options to assist tenants, who may be hardest affected by buyouts of the properties they are renting.