Testimony: Release of Sandy Insurance Funds to Homeowners

Testimony by Ann Dibble, Director of Storm Response Unit, before the New York State Senate Standing Committee on Banks

February 28, 2013

Chairman Griffo, Senators and staff, thank you for the opportunity to testify today about the issue of banks and mortgage servicers refusing to release funds to homeowners who have been impacted by Supertorm Sandy. I am the Director of the Storm Response Unit at the New York Legal Assistance Group (NYLAG). NYLAG is a nonprofit law office, founded in 1990, that is dedicated to providing free legal services in civil law matters to low-income New Yorkers. Among other vulnerable populations, NYLAG serves immigrants, seniors, the homebound, families facing foreclosure, renters facing eviction, low-income consumers, those in need of government assistance, people with disabilities and low-income members of the LGBT community.

NYLAG has been on the frontline since Superstorm Sandy hit. We quickly established our Storm Response Unit, which currently consists of more than 20 full-time, dedicated professionals who have already served nearly 3,000 storm victims throughout New York City, Long Island and other impacted areas. As such, we have seen firsthand the problems being faced by homeowners who are having their insurance proceeds retained by banks and mortgage servicers. It’s difficult enough for clients to successfully navigate the roadblocks being put up by insurance companies – delays, indifference and what appears to be deliberate mistreatment of policyholders by homeowners’ insurance companies and the private companies that administer the National Flood Insurance Program (NFIP). But when the proceeds they are able to obtain are then improperly held by banks and mortgage servicers, their distress is further compounded. Homeowners are confused and frustrated that they cannot get the funds to which they are entitled and which are necessary for critical repair and rebuilding. Clients facing this issue are caught in a maze of inconsistent information and bureaucratic red tape.

The problems NYLAG clients are facing include inconsistent policies and procedures, a lack of clear instructions about what is needed to obtain the release of funds and inexplicable delays in processing paperwork. Homeowners cannot get reliable information about what documentation loan servicers need, and even when they do, documentation is often lost or not processed properly. First mortgage holders do not communicate with second mortgage holders, resulting in further delays.

This problem is being faced by homeowners who are fully current on their mortgage payments as well as those who may have been in arrears. There is no excuse for retaining insurance proceeds for homeowners who are current on their mortgages. Even those who are behind should be able to get their proceeds so they can repair and rebuild. There are already adequate procedures in place for mortgage holders to handle loans that are in or near foreclosure, including modifications and other workout options administered through settlement conferences. They should not reap a windfall just because the client happens to have sustained insurable damage due to Sandy.

NYLAG helped a Long Island family that had been waiting since November to obtain the release of insurance funds from their mortgage servicer. The family was forced to pay out of-pocket for the most urgent repairs, and was only able to do so with the help of an intra-family loan. The situation was very embarrassing for the homeowners and added significantly to their post-Sandy stress. The servicer claimed they were entitled to apply the insurance proceeds to mortgage arrears, but even though the amount of insurance funds exceeded the amount of arrears, the servicer refused to release any of the funds. The family was finally referred to NYLAG in February. Only after our legal intervention, was the bulk of the proceeds released, finally allowing the homeowners to begin the remaining repairs.

NYLAG is also working with several clients whose mortgages are being served by a company that insists on sending its own inspectors to clients’ homes to make its own assessment of whether the home can be salvaged. Clients are unaware of what standards are being used, and only if the company decides that the home can be salvaged will they release clients’ insurance proceeds. At best, this delays the release of insurance proceeds by 3-4 weeks, but it sometimes takes much longer. Adding insult to injury, the company charges clients for the inspection.

These unnecessary delays in getting funds in the hands of homeowners have significant consequences for New Yorkers and their communities. Without access to money needed to repair their homes, people are either living in unsafe, uninhabitable homes or remain displaced while repairs go unmade. The stock of rentable apartments is reduced, further compounding our area’s chronic housing shortage. Neighborhoods are less safe and less vibrant. Homeowners who cannot rebuild or repair leave their homes open and unsecure and vulnerable to further damage
and deterioration. Mold continues to proliferate, and will until it is properly remediated. Every new snow or rainfall compounds the damage.

NYLAG applauds Chairman Griffo for your leadership on raising awareness of this issue and for your public pressure on banks and mortgage servicers to do right by New Yorkers.
Thank you for the opportunity to testify today. We would welcome the chance to further discuss or comment on these matters in the future.

Respectfully submitted,
THE NEW YORK LEGAL ASSISTANCE GROUP
Ann E. Dibble, Director, Storm Response Unit
Christopher Fasano, Staff Attorney, Storm Response Unit