Sandy's Cost Legacy Is Strain on Middle-Income Owners

NEW YORK (TheStreet) -- Richard Chimienti and his wife grew up by the bay in Long Beach, N.Y. and could not dream of living anywhere else.

In 2007, right at the market peak, the couple, both teachers, bought a house just 200 yards from the water for $520,000. Never having seen serious instances of flooding they did not spend too much time worrying about a serious disaster. Their lender required them to carry flood insurance, which they duly purchased.

When Superstorm Sandy struck in the fall of 2012, their house was inundated with 4 feet of water. Insurance adjusters assessed the damage at $130,000, which Chimienti collected.

Not long after that, Chimienti received a letter from FEMA(Federal Emergency Management Agency) and the city of Long Beach that essentially told him that his house had suffered so much damage that it had to be either elevated or knocked down and rebuilt in order to be in compliance with the community's floodplain ordinance.

His contractors told him that elevation was not an option and he had no choice but to tear his home down and rebuild. But all he could claim from his insurance was another $30,000 to meet the increased cost of compliance, even though the maximum payable amount is $250,000.

"The house was totaled," says Chimienti. "Why not give me the maximum $250,000 that the insurance covers? I fought with them for months but I didn't win that battle."

With the insurance money barely meeting the cost of rebuilding, Chimienti turned to FEMA for assistance. But the organization directed victims to the Small Business Administration first. The SBA offers disaster victims home loans upto $200,000 for 30 years at interest rates as low as 1.68%.

The SBA determined it would take $380,000 to rebuild the house and offered him a loan of $220,000. Chimienti took the loan, believing he could still qualify for federal grant money, which he could then use to pay off the loan.

But he later found that he had been misled and that the fine print had eluded him. It turns out, qualifying for an SBA loan makes him ineligible for the grant. Now he wishes he had not followed FEMA's directions in applying for the loan.