Why some Sandy survivors are being told to return aid money

In the aftermath of Sandy, two of the main places many storm victims turned for assistance were FEMA and the NJ Department of Community Affairs, which distributed housing and rental aid from the federal government. The money from both these sources has been instrumental in helping residents slowly repair their damages and rebuild their lives.

But just as they thought they were making progress, some Sandy survivors have been surprised to receive letters in the mail asking them to return some of that funding or notifying them of reductions in the amounts they had previously been promised. In some cases, these letters threaten legal action, negative reports to credit agencies, property liens, and impacts on residents’ future eligibility for federal disaster assistance if they fail to pay. The requests — which the government refers to as “recoupment,” but which homeowners call “claw backs” stem from government audits that found miscalculations in the original grant amounts or determined that recipients are not in fact eligible for as much as they had initially been told.

Thousands of letters like this were sent after past natural disasters, so they’re not unique to Sandy or to New Jersey. Still, they’ve caught many residents offguard and have spurned outrage among storm victims and lawmakers alike.

Government officials respond that they’re bound by regulations that require them to be responsible stewards of taxpayer dollars.

How this affects people

After Angela Paul’s home in Toms River was destroyed by Sandy, Santander Bank — which held her home equity loan — told her she had to pay off the $80,000 balance she owed, since the home was being demolished. She did that using her flood insurance payout, then applied for and was awarded a $114,000 Reconstruction, Rehabilitation, Elevation and Mitigation (RREM) grant from the state to rebuild. After getting the award, she realized that she should add an extra room to her new house where therapy could take place for her teenage grandsons — who live with her and require round-the-clock care for their severe autism — so she took out an extra $24,000 loan from the Small Business Administration to make up the difference.

In December, the state notified her of a $14,000 reduction in her RREM grant because they considered the SBA loan additional funding, even though it was offset by the fact that the overall price of her construction had increased.

Furthermore, she was told that since her bank had refused to provide her with documentation detailing the “forced payoff” requirement for her loan, the state concluded that she had chosen to pay off the loan with money she could have used to rebuild her home.

State officials declined to comment on the case, saying that information about specific RREM Program applicants is confidential under the federal Privacy Act.

Paul is in the process of trying to appeal, but so far she hasn’t had any luck, and she’s grown increasingly despondent.

“We owe the builder $9,200, and that’s what I was thinking about today,” she said. “I was sitting here in tears again, cause I don’t know where I’m going to get the money!”

Long Branch resident Ted Friedli is in a similar situation. After the storm, he received a $26,000 RREM grant to help repair and elevate his home. A year later, after he had already spent the money, he got a letter from the state giving him five days to pay it back because state officials had underestimated how much funding he’d received from other sources, including an SBA loan.

“For them to say, ‘We made a mistake. And now, by the way, pay us back the money…’ Life is not supposed to work that way!” Friedli said. “Maybe with the government it does, but in my business, it doesn’t work that way.”

Despite months of repeated requests for an explanation, he said he has yet to receive a response from the state and is unsure what to do.

What government officials say

FEMA says that while it wants eligible applicants to receive the disaster assistance they need, it also needs to ensure that proper safeguards are in place so federal dollars are correctly spent.

“Throughout the disaster-relief application process, FEMA performs quality checks and audits for payments made in error,” the agency said in a statement. “Unfortunately, whether through fraud, human or accounting errors, or other reasons, assistance sometimes goes to individuals who are not eligible. Federal law requires FEMA and other federal agencies to recover improper payments.”

A spokesman added that “FEMA remains committed to working with applicants and ensuring they have an understanding of the options available to resolve their debt, which include making a payment, filing an appeal, requesting a compromise based on inability to pay, and establishing a payment plan.”

Officials with the NJ Department of Community Affairs agreed that while their primary focus has been on distributing aid, they too have had to follow federal requirements to mitigate waste, fraud, and abuse.

“For example,” spokeswoman Lisa Ryan explained, “Sandy-impacted homeowners who received a $10,000 Resettlement grant had to sign a promissory note in which they agreed to remain in their home county for three years or their grant will be repaid to the State. During our residency verification of Resettlement grant recipients, if we find a family has moved from their home county and failed to notify us and return their grant, we take action to recover their $10,000 grant.”

“In another example,” she said, “grant recipients of the RREM Program may receive third-party benefits (such as private insurance funds, Increased Cost of Compliance benefits, SBA loans funds, National Flood Insurance Program monies) after they sign their RREM grant agreement. In those instances, we conduct a review to determine if the additional benefits result in a change to the grant award. If it’s determined that RREM funds already disbursed exceed the recalculated grant award, we take action to recover the funds. We do this because the federal government stipulates that CDBG Disaster Recovery funds must only be used to ‘fill the gap’ between the cost to rebuild a home and other funds the homeowner has received to rebuild the structure.” She added that recovering funds for disaster-assistance programs of this size is anticipated and not at all unusual.

How many people this affects

The NJ Department of Community Affairs says it’s requested the return of approximately $2.3 million in disaster-recovery funds from RREM applicants — which it notes is a small fraction of the total $785 million it’s obligated to date — and $400,000 from 40 Resettlement grant recipients (out of nearly $186 million that has been awarded and disbursed to 18,575 applicants). Seventy percent of the RREM funds and 50 percent of the Resettlement funds recovered have been returned by applicants voluntarily withdrawing from the programs, officials said, adding that any recipient of federal recovery aid — including homeowners, businesses, renters, or units of local government — may be asked to return money.

Meanwhile, FEMA says that of the more than $1.4 billion in assistance it’s provided to 183,000 storm victims in New Jersey, New York, Connecticut, Maryland, and Rhode Island, it’s sent “Notice of Debt” letters to 3,644 people, asking them to return a combined total of nearly $24 million, which is about 2 percent of the funds received by all Hurricane Sandy survivors. That includes about 1,200 New Jersey residents, who’ve been asked to repay an average of approximately $6,500.

NJDCA says there’s no statute of limitations for the length of time after a disaster that it can go back to recover misallocated funds. And FEMA says it can seek repayment of aid money “at any point in the disaster-assistance cycle.” In Louisiana, that meant that tens of thousands of residents received recoupment letters six years after Hurricane Katrina.

What storm victim advocates say

As director of the Ocean County Long Term Recovery Group — an umbrella organization of close to 80 nonprofits working with Sandy survivors — Sue Marticek has seen firsthand how recoupment letters have complicated the recovery effort. Her group tries to help residents come up with the money so they can move forward with efforts to rebuild their homes.

“If someone gets a letter requesting that they return money,” she said, “that could be a game-changer. As we’re trying to come up with a budget, if we don’t have a good number, it places the process on hold, since we don’t know how much they’ll get. It hinders the process.”

So far, most of the recoupment letters Marticek has seen were the result of issues with grant applicants’ paperwork, but she’s worried that the problem could become more serious and widespread as time goes on, more funding gets distributed, and people get farther along in the rebuilding process.

“You can rebuild your house and get a certificate of occupancy from the town, but that doesn’t mean it would be in compliance with the rules,” she said, noting that state officials need to conduct final inspections on all homes receiving RREM grants before liens can be removed. Marticek is concerned that some homeowners and builders unaware of all the regulations pertaining to things like lead and asbestos-abatement and energy efficiency might make mistakes in the construction process and end up having to forfeit federal funding they received.

She’s also afraid that individuals trying to navigate the complicated recovery process on their own rather than working with groups like hers may unknowingly spend the money they receive in ways that violate the rules. As a cautionary tale, she points to Louisiana, where the U.S. Department of Housing and Urban Development said last October — nine years after Hurricane Katrina — that it was pursuing repayment of more than $522 million owed by nearly 18,000 people.

Lawmakers respond

Earlier this year, Sen. Robert Menendez (D-NJ) introduced legislation requiring FEMA to forgive debts for Sandy victims who make less than $250,000 per year if the funds were awarded as a result of a government mistake.

“These families have suffered enough, are barely holding on financially — emotionally — and can’t afford to pay back money they thought all along was rightfully theirs to use towards their recovery,” he said in a press release.

“Homeowners still struggling to rebuild from the devastation of Sandy should not be forced to repay grants that were awarded because of honest mistakes,” agreed Congressman Frank Pallone (D-6th), who introduced a companion bill in the House. “While I understand the importance of reducing waste, fraud, and abuse in the system, the efforts to do so should not be made on the back end of this process in a way that punishes disaster victims with an unaffordable bill.”

The lawmakers modeled their bills on similar legislation that Congress approved in 2012, forgiving debts owed to FEMA by 90,000 Gulf Coast residents in the aftermath of Hurricane Katrina.

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NJ Spotlight, an independent online news service on issues critical to New Jersey, makes its in-depth reporting available to NewsWorks.