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Fishy accounting on the Gulf Coast leads to fraud investigation

Galveston Island, Texas, after Hurricane Ike September 13, 2008. U.S. Air Force photo by Staff Sgt. James L. Harper Jr.

A post-Ike coast

In September 2008, the Gulf Coast was smashed by a very destructive Hurricane Ike that demolished much of Galveston Island in Texas. Now, homeowners in one neighborhood on the island are feuding over allegedly fraudulent use of Federal Emergency Management Agency (FEMA) grants.

As a result, the disputes have led to a fraud investigation into the $25 million federal buyout program for houses damaged by the hurricane. The program is state run and funded through FEMA’s hazard mitigation grant program which is meant to buy houses that are subject to repeated flooding in an effort to prevent future losses.

Abuse of FEMA funds by homeowners?

According to The Houston Chronicle, homeowners in the tiny Sands of Kahala Beach subdivision have made the fraud accusations. They say one homeowner, San Diego lawyer Carol Severance, continues to collect rent on a house rated as “substantially damaged” under the buyout program.

Severance is accusing the homeowners of creating conspiracy theories while the Houston Chronicle reports she has “sold three of her four beach properties under the buyout program, including the house in the lawsuit challenging the Open Beaches Act, and will be paid $812,000 for her house in the Sands of Kahala Beach if she ever gets approval from her homeowners association. Until then, she is renting the house for $5,428 per week during the peak season.”

All funds used will now be investigated

The probe is examining all 68 purchases in the program, even six properties approved through the program but not yet approved- five of which are in Sands of Kahala Beach.

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Pending completion of the investigation, Texas forced the city of Galveston to return $3 million for the six remaining buyouts. The neighborhood dispute could prevent the remaining buyouts as they oppose the possibility that property values will drop when the exclusivity of the area is destroyed by public use of bought-out lots for recreation.

Three years after the terrible destruction of Hurricane Ike, the scars remain and rebuilding is still incomplete.

Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

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