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Protecting and rebuilding your finances after a disaster

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After the shock of a disaster, it’s time to rebuild. Starting over requires a lot of complex choices, uncertainty and expense. Being prepared and knowing how to protect yourself can help you avoid scams, save money and get back on your feet faster.

Relief organizations like the Red Cross can help you with your immediate needs in a disaster. Local organizations will establish shelters, provide vouchers for meals, clothing and a limited amount of personal goods. If you are in a presidentially declared disaster area, the Federal Emergency Management Agency (FEMA) will help you find disaster assistance.

Your home

Contact your insurance company as soon as possible to start the claims process. Also be sure to ask for a copy of your policy if you don’t have one available. This will help you verify your coverage. Take pictures of the damage.

Your next call should be to your mortgage servicer, if you own your home. Damage to your home does not stop your responsibility to pay your mortgage. Tell your servicer about your situation and take careful notes during the conversation. There may be a number of options available that could help you put off or reduce your mortgage payments. Both Fannie Mae and Freddie Mac have told mortgage servicers that they can help homeowners affected by Hurricane Sandy. You can find out if your mortgage is owned by Fannie or Freddie on their websites.

If you don’t have a monthly mortgage statement or coupon book with you, search the Mortgage Electronic Registration Systems (MERS) or call them toll-free at (888) 679-6377 to find the company that services your mortgage. You can also call the CFPB at (855) 411-CFPB (2372) to be connected to a U.S. Department of Housing and Urban Development (HUD)-approved housing counselor.

Adjusters and contractors

Once your insurance claim is received, the insurance company may send out an adjuster to look at the property damage and help you through the claims process. In many states you can also hire public adjusters. A public adjuster represents you as the claimant, but will charge you a percentage of your settlement.

Be careful if you choose to hire a public adjuster. Be sure the adjuster is licensed to do business in your state. Avoid adjusters who come from out of state or who knock on your door looking for business. Other warning signs to watch for are:

  • Red flag: Adjusters who charge big upfront fees. Don’t pay a lot before you know if the adjuster is going to help you. Many states put a limit on fees.
  • Red flag: The adjuster refers you to a contractor. Dishonest adjusters will sometimes work with contractors that give them kickbacks.
  • Red flag: Avoid any adjuster or advisor who asks you to make a false or inflated claim. This is fraud against the insurance company.
  • Red flag: Avoid hiring a public adjuster who asks you for a suspicious amount of personal information. Some con artists may pose as adjusters to steal your personal information.

When picking a contractor:

  • Get bids from several local, established contractors.
  • Avoid contractors who are working door to door, come from out of state, don’t provide an address and phone number, or refuse to show identification.
  • Ask if the contractor has the required licenses. Ask for the license number and use your state licensing agency’s website or hotline to make sure it’s valid.
  • Check with licensing agencies to see if the contractor has a history of complaints.
  • Never pay in advance.
  • Never pay in cash.
  • Never provide personal financial information, such as your checking account credit card or debit card numbers. You might be told this will “speed up payment” to start the repair process. Don’t believe it.
  • If you have to borrow to pay for repairs, don’t let the contractor steer you toward a particular lender.
  • Never sign anything before carefully reading it.

The Coalition Against Insurance Fraud has more information on avoiding adjuster and contractor scams.

When you get your settlement

When your settlement is paid, the check will probably be made out to both you and your mortgage servicer. Most mortgage agreements require this.

Your insurance settlement is to rebuild your home. So the amount may be more or less than what you owe on your loan.

Keep in mind that the market value of your home may not match the insured replacement value. That’s because, in some locations, the materials and labor that go into rebuilding your home may be less than the overall value of your property – its location, desirability and other things that go into housing prices. There are also special laws in various states addressing what happens if your home was insured for less than its replacement value. Your state Department of Insurance or Insurance Commissioner may have useful information. You may also need the advice of a lawyer if your claim is large.

Typically, your mortgage servicer will release a portion of the settlement money before work begins so you can hire a contractor. When the work is halfway finished, the servicer will typically release more money. The rest will be released once the job is finished and the home passes inspection.

Creditors, bills and budgeting

You may have lost your job because of a disaster, or had your income interrupted. If you don’t think you will be able to pay your credit cards or other loans, be sure to contact your lenders as soon as possible. Explain your situation and when you think you will be able to resume normal payments.

Most creditors will try to find a way to work with you. The important thing is to make the call before your next payments are due. Late or missing payments could damage your credit score at a time when you need access to credit most.

If your home is so damaged that you can’t live in it, you’ll also want to contact your utility companies and ask to suspend your service. This could help free up money in your budget for other expenses.

Take a look at your other bills and set priorities. Your mortgage, rent and insurance payments should stay high on your list.

Next, take a look at your income and savings and determine how much you have available. If you don’t have an emergency savings account, consider starting one as soon as you can. If you are unable to work because of the disaster, federal or state benefits may also be available to you.

Watch out for fraud

In times of crisis most Americans pull together. But some people may try to rip you off. Frauds take many shapes, but the con artists often use a handful of common tricks to manipulate our emotions. It is hardest to make rational decisions when emotions run high.

Recognizing the tricks that con artist use, and the effects they have on us, can help you spot scams easier. The best way to avoid scams is to ask questions, lots of them. Asking questions puts you back in control and puts any crooks on the spot.

Avoid over-confidence. The first thing to remember is that most con artists are professionals. Anyone can be victimized by fraud. The problem is that most of us believe it will never happen to us. The more overconfident we are, research shows, the more susceptible we are to fraud. The best way to avoid over-confidence is to always be on the lookout for fraud, especially immediately after a disaster or other times of financial stress.

Don’t give credibility to titles and uniforms that can be faked. Con artists will often pose as government employees, insurance adjusters, law enforcement officials, bank employees, or whatever it takes to get to your money. Credibility can be easily faked. Always ask for identification. And never give personal information to anyone you don’t know. Also remember that government employees will never ask you for financial information or request payment of any kind.

Another common credibility scam is fake charities. These cons use names that are similar to national organizations to get you to make a “donation.” But your money ends up in their pocket. Never make donations over the phone. Make sure you get the organization’s name and contact information and review written materials closely.

Don’t fall for “limited time only” offers. Scarcity is common in disasters. But don’t let it get the better of you. Be suspicious of contractors or others offering to move you to the front of the line. Also beware of “opportunities” that force you to make a snap decision. You should never make a decision under pressure. Take your time. Never sign anything without fully reading and understanding it first. And if necessary, ask a trusted relative, friend, or attorney for a second opinion before acting.

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