Earthquake: The Long Road to Recovery : State Disaster Loans Offer Last Resort

A small state housing program that has been tested in 16 disasters in the last five years is being revved up to help homeowners and apartment owners whose buildings were damaged by the Northridge earthquake.

The California Natural Disaster Assistance Program (CalDap) offers financing to repair or replace single-family homes or rental-housing units that have suffered damage from a disaster.

In the last five years, CalDap has come to the rescue time and time again, aiding more than 1,000 homeowners and apartment-building owners with rehabilitation and home-improvement loans. The state has dished out nearly $200 million following 16 different disasters.

“Everybody always thinks that the government screws up with disasters,” said Toni Symonds, principal consultant with the Assembly Housing Committee, which crafted the legislation creating CalDap after the Loma Prieta earthquake in 1989. “But with so many disasters under our belt we are learning how to respond.”

The loan program only comes into play when the governor has declared a state of emergency and can only be tapped as a source of last resort.

“After someone has gone everywhere else, owners can apply for funds (from CalDap),” said Michael Carroll, who heads up the program for the state Department of Housing and Community Development.

Consequently, homeowners tapping CalDap are usually in desperate need of assistance and are typically underinsured. “By the time a disaster victim reaches CalDap, he or she generally has little ability to make monthly payments,” according to a legislative report on the program. Consequently, they can’t qualify for a private rehab loan.

Single-family homeowners can borrow up to $50,000 for repairs sustained from a disaster. Payments on the 30-year loan can be deferred for the entire term of the loan but must be repaid when the home is sold. The interest rate of 8.5% is lowered if the homeowner repays in less than three years.

To qualify, the homeowner must be residing on the property when the disaster hits and the loan must be secured by a deed of trust.

Condos, townhomes, mobile homes and co-ops qualify, but vacation homes do not. And the money can also be used as “gap financing” by homeowners while they wait to receive federal disaster relief and insurance payouts.

Before qualifying for a special state disaster loan, homeowners must show that they have tapped their homeowners insurance and have registered for emergency funds from the Federal Emergency Management Agency (FEMA).

Apartment owners can obtain loans up to $35,000 per unit at 8.5% interest, but they cannot defer payment. Only buildings with five or more units qualify, and the tenants must be permanent residents, not vacationers or short-term rentals.

If apartment owners agree to keep rents low in their buildings after they make the repairs, they receive a lower interest rate on the state loans.

The state has had to make adjustments to CalDap in the last couple of years.

Initially, some communities were so aggressive about obtaining funds after disasters that there were some abuses, according to Symonds. She pointed to one community where owners tried to get loans through CalDap for new kitchen cabinets on homes where there were just slightly damaged walls.

Initially, “we were getting dinged for housing repairs that were sort of ridiculous,” said Symonds. Since that time, the Legislature has made adjustments to prevent abuse and to contain costs.

CalDap can’t be used to acquire property, and it can only make loans on those repairs that are necessary for the disaster victims to obtain city permission to occupy the home.

CalDap loan officers can be reached at (800) 552-5479 or by writing the state Department of Housing and Community Development at P.O. Box 952054, Sacramento, Calif. 94252.