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Renters' Tips for Displaced Homeowners After a Natural Disaster

Homebuyers and existing owners should know that homeownership can be challenging. Sometimes, natural disasters can cause home values to plunge. Even worse, sometimes owners have no choice but to evacuate their homes for extended periods during emergencies.

It is common for displaced homeowners to rent property while awaiting repairs to their homes. This is especially true when a natural disaster forces them into the rental market. When disaster strikes, the Federal Emergency Management Agency (FEMA) payouts may be available. The National Flood Insurance Program (NFIP) is another resource for owners faced with flooding risks.

For example, Houston residents might remember the flood hazards ensuing from Hurricane Harvey, which forced property owners to evacuate. Disaster damage in the real estate market may force people to rent temporarily. Examples include:

  • Earthquakes, fires, hurricanes
  • Tornadoes, wildfires, flood damage
  • Climate change events and storm surges

There are only a few differences between the rental procedure for displaced homeowners and the process followed by other renters. The following tips will guide a homeowner through the process of becoming a temporary renter in a new home.

Use 'Loss of Use' Coverage To Pay for a Rental

One of the most important renters' tips for a displaced homeowner is to take advantage of "loss of use" coverage provided by a homeowner's insurance policy. Loss of use, or "additional living expense" coverage, will pay for the cost of living in another home. A homeowner may use this coverage under the following circumstances:

  • Damage covered under the insurance policy makes the home uninhabitable
  • A law enforcement agency or a disaster relief organization ordered the evacuation of the home (e.g. in high-risk situations)

While a home undergoes repairs or rebuilding, loss of use coverage will reimburse the policyholder for living expenses that exceed those that a homeowner would normally incur while living in their home. Covered expenses include:

  • Temporary housing
  • Cost of temporary storage and moving
  • Laundry costs
  • Cost of some meals

Most policies limit benefits by enforcing time constraints or restricting the maximum reimbursement to a percentage of the coverage amount on the home.

The type of housing the insurance provider will pay for depends on the severity of damage to the home. If it is possible to make repairs quickly, loss of use coverage will pay for a hotel stay. However, if it is impossible to fix the home quickly, the homeowner may use the coverage to pay for a rental. Generally, the insurer will pay for a rental similar to the home the policyholder lived in.

Gather Required Documents

Prospective tenants often saturate the rental market when a widespread natural disaster occurs. Gathering the appropriate documentation will help alleviate delays and increase the chance of moving into a rental quickly. The following are important tips about the documents a homeowner should obtain before searching for a rental:

  • Credit Report: Although a landlord can obtain a copy of a prospective tenant's credit history through a credit reporting agency, providing a copy may speed up the application process.
  • Proof of Employment: Verify employment and income by obtaining a letter from an employer.
  • Proof of Income: If self-employed, establish proof of income with the most recent tax return.
  • Proof of "Loss of Use" Proceeds: Verify housing reimbursement from an insurance provider by giving the landlord a letter from the insurer about the homeowner's situation and providing a copy of the insurance policy.

Don't Fall Prey to Rent Gouging

Price gouging after a natural disaster is illegal in many states. Laws prevent service providers from unreasonable price increases on certain services and supplies, including:

  • Housing
  • Medical supplies
  • Gas and transportation
  • Building supplies
  • Repair services

For example, it is illegal in California to engage in rent gouging. California defines rent gouging as an increase in the price of a rental unit by more than 10% of its price before the disaster. A violator is subject to a fine of up to $10,000, a year in jail, or both.

A homeowner can report rent gouging to a state's attorney general or the local prosecutor's office. If you're working with a real estate agent or Realtor to help you find a rental, let them know affordability is a priority. They may be able to help you file a report in case a landlord tries to rent gouge.

Understand the Tenant Screening Process

A landlord must base the selection of a tenant on objective criteria. For example, a landlord must require all tenants to provide the same information. A landlord may choose a tenant by considering such factors as credit history, income, and references.

The federal Fair Housing Act and the Fair Housing Amendments Act prohibit the selection of tenants based on race or color, national origin, religion, disability or handicap, sex, and familial status.

Decide Whether To Sign a Lease or a Rental Agreement

Because a displaced homeowner is only seeking temporary housing, it is important to understand the difference between a rental agreement and a lease. The anticipated length of the stay will help determine whether a rental agreement or a lease is most appropriate. It is important to avoid oral agreements since the terms and conditions agreed upon will be difficult to prove if problems arise.

If a displaced homeowner expects to return home in a few months, entering a rental agreement may be best. Unlike a lease, a rental agreement is a contract for a short-term tenancy. Rental agreements are more flexible than leases.

In most states, the tenant or the landlord can easily end the tenancy by giving a 30-day notice for a month-to-month agreement. If neither party ends the tenancy, the agreement automatically renews with the same terms and conditions each month. The landlord, however, can change the rental terms by giving appropriate notice to the tenant.

A lease agreement may be the best option if a homeowner will rent for a year or more. A lease agreement is a contract for a long-term tenancy that usually lasts for at least six months or a year.

Unlike a rental agreement, the terms and conditions of tenancy remain in effect until the lease term expires or until the tenant agrees to the changes in writing. This means that the landlord cannot increase the rent during the term of the lease, and the renter will remain responsible for the balance of the rent even if the rental is vacated before the expiration of the lease.

Obtain Money for the Security Deposit

It is necessary to pay a security deposit when moving into a rental. State law allows landlords to collect a deposit from renters to pay for damage to the property and unpaid rent. In many states, a landlord cannot charge more than one to two times the rent for a security deposit. After the tenant moves out, a landlord may use the security deposit to make repairs that exceed ordinary wear and tear. Within the time specified by state law, the landlord must return the remaining security deposit to the tenant.

Obtain Renters' Insurance

Like homeowner's insurance, a renter can obtain renters' insurance to protect against loss while living in a rental. Renters' insurance provides reimbursement up to the maximum amount of the insurance policy. Ask your insurance agent for more information about coverage.

Consider Speaking With a Lawyer

Insurance companies may deny claims after a disaster. They might also unjustly raise premiums. If your insurance denies coverage for your temporary rental or you face challenges with your landlord, speak with an insurance lawyer or a landlord and tenant lawyer. You may also benefit from legal advice from a real estate attorney.

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