TIME Oil

The State That’s Beginning to Wish It Never Got Rich

An oil drilling rig at dusk near New Town, North Dakota on June 29, 2012.
An oil drilling rig at dusk near New Town, North Dakota on June 29, 2012. Michael S. Williamson—The Washington Post/Getty Images

Oil has brought great wealth and the nation’s lowest unemployment rate to North Dakota. Soaring homelessness, crime, and housing prices have come along for the ride.

North Dakota has had much to brag about in recent years. It is the state with the fastest-growing population in the nation (up 7.6% from 2010 to 2013) and, by no small coincidence, also the lowest unemployment rate (just 2.6%). North Dakota now ranks 29th in millionaires per capita, up from 47th in 2007, climbing far faster up the ladder than any other state in that department.

The state’s oil boom, which kicked off in earnest about the same time as the Great Recession, and which helped North Dakota grow wealthier as the overall economy has languished, is directly responsible for all of these bragging points. “It’s unexpected, a blessing,” one North Dakota landowner told USA Today back in 2008, when many farmers first began earning as much as $1 million annually from oil companies operating wells on their properties. “It’s like winning the lottery.”

Yet in the same way that many lottery winners say their jackpot was a curse, North Dakota is currently absorbing a string of be-careful-what-you-wish-for lessons.

(MORE: 7 Signs It’s Time to Quit Your Job)

In recent weeks, reports have surfaced revealing the following disturbing factoids:

• The violent crime rate has doubled in Bismarck, the state capital.

• The prison population has risen 178% over the past 20 years, compared to a 13.3% increase in the overall population.

• There was a 200% increase in homelessness in the state last year.

• Bizarrely, the city with the highest average rent for an entry-level apartment isn’t to be found in California or New York but North Dakota—the city of Williston, where oil jobs are plentiful, and where the population has more than doubled since 2010.

Meanwhile, a 2012 report by ProPublica is one of several exploring how the oil industry could spell environmental disaster for northwestern North Dakota, the epicenter of the state’s boom. A well-publicized accident involving a freight train carrying crude oil in North Dakota last December has also called into question the safety of the production and transportation of crude in the state.

The changes to the state traditionally known for being exceptionally cold, exceptionally quiet, and, until recently, exceptionally stable aren’t going unnoticed. The idea that the “blessing” of oil could very well prove to be a curse is gaining traction. In a recent column in the Bismarck Tribune, Clay Jenkinson, a Theodore Roosevelt Center scholar at Dickinson State University, highlighted a handful of local stories in the news that would have been unimaginable in North Dakota a decade ago but that suddenly seem to be expected, stories involving sex trafficking, prostitution rings, drug wars, and grisly murders. He summed up the unwelcome elements of the state’s transformation this way:

It’s like seeing your nephew for the first time in a couple of years. His parents look on him as the same old Ralphie, but you instantly notice that he is 6 inches taller than when you last saw him, he has some chin hair, he wears outsized jeans jammed well down on his hips, his voice cracks when he talks about the Super Bowl, and he catches himself about halfway into the F-word.

(MORE: Snow Removal This Winter Is Costing Your Town a Fortune)

In Midland, Texas, a town where the oil boom has come and gone, and come back again, the major offered some advice to communities in North Dakota and elsewhere that are currently “enjoying” high times thanks to oil riches. “Don’t go overboard,” he said to the Associated Press. “It’s not going to last.”

TIME real estate

Actually, San Francisco’s Inequality Problem Isn’t the Tech Industry’s Fault

Signs in opposition of technology companies are seen in San Francisco, California Dec. 9, 2013.
Signs in opposition of technology companies are seen in San Francisco, California Dec. 9, 2013. Stephen Lam—Reuters

But a lack of construction appears to blame

Widening wealth and income inequality have been a hot political topic for several years now, and nowhere more than tech boomtowns like San Francisco. In recent weeks and months, protesters have taken to picketing parts of the city where Google’s private luxury buses come to pick up their highly paid engineers in order to take them to work at the firm’s nearby campus in Mountain View.

The protests are ostensibly about Google’s use of public bus stops for private purposes, but they are motivated also by the impression that new tech money is raising home prices and forcing long-time residents out of the city they love. “You can say ‘I’m just a company, leave me alone, I’m creating jobs, why do I have to do anything else,’” San Francisco mayor Ed Lee recently told TIME. Well, no company can feel that way … Being a citizen of San Francisco, there’s more obligations.

The data, however, paint a more complicated picture. In a report released Thursday, Jed Kolko, Chief economist for the real estate site Trulia, dug into Census and home price data to see where home values are rising faster in tech hubs than the rest of the country and what is driving those increases.

Kolko used Census data to determine the metro areas with the highest concentrations of tech workers, and looked to see how price increases in those cities compared with the country overall. He found that “recent price gains in tech hubs are in line with national trends.” In fact, of the top 10 metro areas with the highest price increases, the only tech hub was Oakland, while four of the tech hubs identified by Kolko were below average in terms of price increases over the past year.

And while tech hubs are generally more expensive places to live, their being expensive predated the Internet boom. Writes Kolko:

“Today’s tech hubs had expensive housing before dot-commers, Internet bubbles, and all that came with them. Decades ago, many of the metros that would become tech hubs had advantages like major research universities, technically skilled workers, thriving computer manufacturing industries, or a nice climate. Places with advantages like these tend to be more expensive, and they turned out to be fertile soil for the today’s tech industry.”

So what’s the real culprit for sky-high home prices in San Francisco? Kolko points to a lack of construction. He writes, “Since 1990, there have been just 117 new housing units permitted per 1,000 housing units that existed in 1990 in San Francisco. That’s the lowest of the ten tech hubs and among the lowest of all the 100 largest metros even with the recent San Francisco construction boom.”

Compared to other tech-heavy cities like Raleigh or Austin, construction in San Francisco occurs very slowly. writes Kolko, “Geography limits construction in the Bay Area–it’s hard to build on the ocean, the bay or on steep hills–but regulations and development costs hurt too.”

MONEY Insurance

5 Things to Know About Umbrella Insurance

Umbrella insurance covers you for liability risks you may not even have been aware of.

Even if you already have insurance for your home and car, you may not be adequately covered. This policy can help.

1. Without it, you could lose everything

If you cause a car accident and the other driver sues, your auto insurance covers you up to your personal-liability limit, which is likely between $100,000 and $300,000. Same goes for your homeowners insurance if the mailman slips on your steps.

An umbrella liability policy pays for settlements and legal fees above your limit. Without this insurance, your wages and assets are at stake (though in some states, retirement funds, pensions, and your home are excluded).

2. Liability risks are everywhere

“More than 80% of umbrella losses are auto-related,” says Ed Charlebois of Travelers Insurance. Even if you’re the safest driver, your teen probably isn’t.

Redoing your kitchen? Your general contractor may not adequately vet subcontractors for workers’ comp or liability.

Host a lot of parties? If a guest gets into a drunken-driving accident, the victim can come after you. Got a pool, hot tub, or boat? Employ a nanny or a housecleaner? Then you have risk factors.

3. You’re insuring against the worst-case scenario

The median jury award for vehicular accident liability cases is $21,000, found Jury Verdict Research. But the average is $306,000 — so some settlements are much, much higher. That’s why many financial planners say an umbrella policy is a must for those with significant net worth.

“Insurance is there to stop an accident from being a life-changing event financially,” says Redondo Beach, Calif., CFP Scott Leonard.

4. A lot of coverage costs very little

A typical homeowner with two cars can get a $1 million policy for $250 to $400 a year, reports the Insurance Information Institute.

“My rule of thumb is for clients to have coverage equal to one to two times their exposed net worth,” says Franklin, Mich., financial planner Bert Whitehead. (By “exposed,” he means assets vulnerable in your state.) That way you are not just shielding your money, but ensuring that the insurer will mount an aggressive defense.

5. You may need to juggle coverage first

Umbrella insurance usually requires specific liability limits on the policies it’s piggybacking — such as $300,000 per person on auto and $300,000 on home. So you may have to boost your coverage. Plus, some carriers extend an umbrella only over policies they have issued, says Jim Kuryak of Niagara National Insurance.

On the upside, bundling with one insurer can offset the added cost; it can shave as much as 20% off home and auto premiums.

TIME real estate

New Home Sales Fall For Second Straight Month

Mark Zuckerberg during a Facebook press event to introduce 'Home' a Facebook app suite that integrates with Android in Menlo Park
REUTERS—REUTERS

The number of new homes sold in December fell for the second straight month, the Commerce Department announced Monday

The number of new homes sold in December fell for the second straight month, the Commerce Department announced Monday, to a seasonally-adjusted, annual rate of 414,000 homes. Despite the monthly fall, the annual rate was the best since 2008.

Sales of new homes typically decline during the winter months, and the below-average temperatures experienced by most of the country may be playing a role in the sales declines. The average interest rate on 30-year mortgages also rose significantly in the final weeks of 2013, and may have affected prospective buyers’ ability to afford new homes.

Despite the monthly declines, home sales for the entire year increased 16.4% compared to 2012, marking the second straight year that new home sales increased on an annual basis.

MONEY Ask the Expert

How to Sell Your Home Without a Real Estate Agent

Q: How do I sell my home without using a real estate agent? — Bill, Chicago

A: With housing on the rise, more sellers are flying solo, says Eddie Tyner, general manager of ForSaleByOwner.com. The appeal of FSBO: skipping the seller’s agent commission, usually 3%, when houses seem to sell themselves.

It’s not that easy, of course. You probably should put your home on the multiple-listing service, which displays more than 90% of homes for sale; do that via sites like ForSaleByOwner.com or Owners.com.

You must avoid the mistake of turning people off with a steep price; your listing, per square foot, should be within 10% of that of similar homes nearby.

And you may not be up to the job. It requires a serious time commitment and unemotional negotiations.

Plus, you’ll have to overcome a perennial worry: Could an experienced agent have fetched you a better price?

What selling a $300,000 home costs:

You can pocket extra cash by selling your home yourself… if you can get the same price a broker would.
With a broker: $20,000
On your own: $11,000
Notes: In both cases, seller pays buyer’s agent commission; miscellaneous expenses are for photos and open house; without a broker.

MONEY homeowners insurance

After Sandy’s Flood: Family Still Struggling to Rebuild Finances

A growing family makes moving out of their cramped rental and back home all the more urgent for Michael Motherway and Jennifer Schanker. Photo: christopher sturman

Hurricane Sandy wrecked their home and their finances. A year later, this Staten Island family, like tens of thousands of others in the New York metropolitan area, is still struggling to recover.

On Oct. 29 of last year, as Hurricane Sandy was bearing down on the East Coast, Michael Motherway and Jennifer Schanker debated evacuating. Their nearly 90-year-old 1,200-square-foot house on New York City’s Staten Island was eight blocks from the water, and city officials were warning residents to leave the block or, better yet, to leave the island.

In the end, Motherway, a heating and air conditioning technician, and Schanker, an assistant in the trust department of a Manhattan bank, remained. The evacuation wasn’t mandatory, they reasoned, and the couple had heard similar warnings in anticipation of Hurricane Irene a year earlier, only to suffer no more damage than a few broken tree branches.

Motherway and Schanker, his partner of six years, figured they were far enough away from the beach to withstand this storm relatively unscathed too. The couple had plenty of company: Most of their neighbors decided to stay put as well.

As the day turned into evening, and the winds picked up, Motherway walked to the beach for a firsthand look. He came back around 7:30, reporting that the surf was impressive but that everything else seemed normal. Tired of the drumbeat of TV news, the couple switched channels, hoping to distract their 1-year-old daughter, Adriana. She fell asleep watching a movie about Alvin and the Chipmunks stranded at sea.

Around 8:15 p.m., Schanker heard a neighbor scream. Looking through the window, Schanker saw a woman jump out of a red hatchback that had been driving the wrong way down their one-way street, leaving the car door open as she ran toward the neighbor. Then the woman appeared to panic and reverse course, heading back to the car, just as two waves of seawater rushed down the avenue, one from either side.

Schanker watched, horrified, as water filled the car’s interior through the open door, forcing the driver to once again abandon it. Schanker never learned what happened to the woman but recalls, at that moment, “I knew we were trapped.”

Within minutes the water outside their house was several feet high. Frantically, Motherway and Schanker began moving their belongings to the second floor. By 9 p.m., the water level had reached eight feet. “The sea filled the world outside like a bathtub filled with water,” Schanker says. “We were literally in the ocean. Waves crashed against our house.”

As Schanker held her daughter, now awake and crying, the electricity went out, leaving the three of them huddled together on the second floor, the wind outside howling. Downstairs, they could hear pieces of furniture crashing together, the washer and dryer hitting each other. “We’re going to drown here, aren’t we?” Schanker asked Motherway.

Instead, around midnight, just before the rising water hit the second floor, it leveled off, then began slowly receding. The next morning the couple was able to wade through hip-deep water to safety, Adriana in Schanker’s arms.

Their home, though, was in ruins — one of more than 60,000 damaged in New York City that night. “Everything left on the first floor was destroyed — the couches, the boiler, the electrical panel, washer, refrigerator, tables,” says Motherway. There was structural damage too. The water warped the walls and caved in the flooring; part of the fence was swept out to sea.

Before it finally broke aparton land, Sandy would become the second-costliest hurricane in U.S. history, exacting nearly $70 billion in damages across 24 states. Of that total, $19 billion was in New York City, where the transit system was crippled and more than 1 million people were left without power.

The storm hit Staten Island with particular brutality, causing mass flooding and killing 24 people (286 died in all). Power outages lasted into January. A year later an estimated 27,000 on the island and throughout the New York/New Jersey area are still unable to return to their homes.

Count Motherway, 43, and Schanker, 37, in that group. The couple have spent the past year working with insurers and government agencies trying to come up with the money to rebuild their house. But the roughly $95,000 that insurers have paid out in claims to date is far short of the amount needed to repair the damage and bring the house up to newly stringent post-Sandy building codes — initial estimates put the price tag at $260,000.

They’re also in a serious dispute with their mortgage lender: While their payments had been suspended for the first six months after the storm, the bank is now demanding they resume sending monthly checks, plus make back payments — or else face foreclosure. Meanwhile, federal assistance to cover the cost of their temporary living quarters a few miles away has run out.

The couple acknowledge they’ve made some mistakes in dealing with the aftermath of Sandy that have exacerbated their financial troubles. Feeling overwhelmed, they initially ignored notices from the bank about their mortgage. Eager to begin repairs, they moved too quickly to clear out the damage from the storm, which made it difficult for insurance adjusters to accurately assess their claim. And they’ve borrowed heavily to replace personal belongings that weren’t covered by insurance. All told, their expenses exceed their take-home pay by about $3,000 a month.

Returning to their house remains the couple’s top priority. Currently the family — Adriana is now 2 and Michael John was born in September — is living in an apartment so cramped that Motherway sleeps on a mattress on the living room floor. To get back home, though, the couple will first need to square things with the bank, bridge the gap between what rebuilding will cost and what insurers have been willing to pay, and reverse their budget deficit.

Schanker would rather focus on other goals — she’d love to get married, maybe talk about having another child — but says there is no way the couple can even discuss such major moves while they’re still in post-storm recovery mode.

“We are in limbo,” says Schanker. “We just want to move forward already. I’m tired of being a Hurricane Sandy victim.”

Motherway opens the front door to the house at 820 Nugent Ave., cautioning a visitor to watch his step. Inside the entryway, there is no good place to stand. The floor is gone, the pebbled earth visible through the floor joists. Electrical wiring snakes haphazardly across the room. The only interior wall left separates the main space from the laundry room. The place smells faintly of mildew.

Like Schanker, Motherway is frustrated by the slow pace of recovery. “I want to go in and fix this house,” he says. “I’m handy. With help, I could put down subflooring, insulation, piping. But I don’t want to get killed by the whole insurance thing.”

Motherway and Schanker walk out to the backyard, a gravelly area now overgrown with weeds and strewn with debris deposited by Sandy. During the storm everything in the yard was violently tossed about and the couple’s barbecue grill ended up on the fence, suspended over their neighbor’s property. The battered Weber still rests there. It’s symbolic, says Schanker. “Mike is just not ready to let that grill go.”

In the first days after the storm, with the nation’s attention focused on them and their neighbors, Motherway and Schanker had reason to believe their lives would return to normal faster. Through a co-worker, Schanker quickly found an apartment nearby to live in temporarily. Within two weeks the Federal Emergency Management Agency came through with $2,900 to cover the first few months’ rent; the payments continued through fall of this year.

The couple also moved swiftly to replace their vehicles. Sandy totaled Motherway’s late-’90s Nissan truck, while Schanker’s car, a used BMW 3 Series she had bought just two months before, was nowhere to be found. She searched for days before learning that the floodwaters had carried the car several blocks away, where it jumped a fence and disappeared.

Three days later, as basic services were being restored to the neighborhood, sanitation workers couldn’t figure out what was clogging a major industrial drain. As they dug through the muck, they found Schanker’s car jammed into the drain like a cork. The BMW was battered, coated in sewage. “I loved that car,” she says.

Fortunately, their auto insurer processed their claims quickly. Motherway used the $7,000 he received for a down payment on a new Buick Enclave, financing the remaining $24,000. Meanwhile, Geico paid Schanker enough to recoup most of the $13,000 she’d put down on the runaway Beemer, which she used to buy another used BMW, and upgraded to a 5 Series. She relied on 0% financing offered by her employer to Sandy victims for the other $30,000.

“The car is one of the nicest things I’ve ever owned,” she says, but “if I’d known where we’d be a year later, I wouldn’t have gotten it.”

Sorting out claims for the house proved tougher, in part because the couple had to deal with two insurers: State Farm, their homeowners carrier, for damage caused by wind, and Travelers, their flood-insurance provider, for problems caused by water.

From the beginning, they knew not to expect much from State Farm because most of the destruction was due to water. Still, Motherway and Schanker were able to demonstrate that missing roof shingles and the blown-down fence resulted from the storm’s fierce winds. After meeting a $1,000 deductible, their first State Farm check was a mere $855. Motherway asked the insurer to resend the adjuster and ultimately was awarded nearly $11,000 more.

The flood-insurance process has been more complicated. The couple knew to limit their cleanup work until a claims adjuster could review the damage. They expected to have to wait a long time, given the surge of claims. Clumps of mold started making them nervous, but they were relieved to get a call from Travelers two weeks after the storm saying that an adjuster from a Mobile firm it had contracted with to help handle claims would be coming to visit. Someone by a different name showed up from the Mobile company, but they didn’t think anything of it. The adjuster toured the house, took careful notes, and drew diagrams; Motherway and Schanker documented his work on videotape.

Relieved to be able to start clearing away the soggy debris, the couple got to work almost immediately after the adjuster left. “It was a Sunday,” Motherway recalls. “We were standing there, overwhelmed, and I said, ‘What do we do now?’ Jenn jokingly picked up a sledgehammer.” A church group happened to be walking by and asked if they could help. “They helped us rip up almost half the house.”

Then things got weird. About two weeks later, Motherway got a call from a man claiming he was their adjuster. “I thought I was being scammed,” Motherway says. A call to Travelers led him to the Mobile firm, Southeast Catastrophe Consulting, which told him the first adjuster had not been authorized to visit his home. Southeast’s president, Robert Evans, told MONEY that the adjuster had been fired and all his cases reassigned. A Travelers spokesman confirmed the story.

Back to square one. The new adjuster came but had a difficult time evaluating the full extent of the damage because by that time the house had been cleared and gutted. Their first payment from the flood insurer: $69,000. Motherway pushed to have an engineer analyze the foundation after receiving a code violation notice that it was cracked, netting him a couple of thousand more.

Another check from Travelers for nearly $13,000 arrived in September. The couple’s experience is similar to that of many Sandy families, who have complained about the protracted claims process and settlement checks that come in dribs and drabs.

The $95,000 or so in payouts so far from Motherway’s homeowners and flood policies isn’t enough to cover the actual cost of repairs. To comply with more stringent building codes put in place after Sandy, the couple also need to install support piles to raise the house 10 feet.

Estimates that Motherway has compiled — mostly from acquaintances in the construction business — put the total project price tag at around $260,000. The current market value of the house: $204,000, down from $303,000 before Sandy. Meanwhile, Motherway still owes nearly $275,000.

Despite the high cost, Motherway and Schanker feel that rebuilding is their only viable option. No one would buy the property in its current condition, Schanker points out.

Without the funds to proceed with repairs, though, the couple are unsure of their next move. Initially they could afford to wait as they worked on getting their insurance settlement bumped up. After all, FEMA was covering their rent, and Wells Fargo, their mortgage holder, had granted them a six-month suspension on payments, as the bank did for all customers displaced by Sandy.

When the grace period ended in April and the bank started pressing for payment, Motherway and Schanker panicked and didn’t respond. Neighbors and friends reassured them that the bank would eventually just tack the amount past due onto the back end of the loan.

Bad call. The notices from Wells Fargo demanding that Motherway, the sole title holder, resume payments of $2,148 a month, plus send the amount past due — by then, about $13,000 — became more threatening. The latest communication used the F-word: foreclosure. Motherway’s initial unresponsiveness hasn’t helped his cause.

“We are trying to be flexible. We have offered extensions of the moratorium period,” said Marie Day Hayes, a senior vice president for Wells Fargo, when asked about Motherway’s loan. “If the customer is in that situation, they need to have a conversation with us.”

The couple have since made tentative attempts to resolve the issue. After getting bounced among different bank representatives, Motherway was finally connected to a disaster-relief specialist in September, but says he was told he was not a candidate for loan modification because his house is not habitable.

Instead the bank offered to reduce his payments for three months to $1,600 a month; after that, he’d have to send in the past due amount and resume regular mortgage payments. Motherway sent a check for $1,600 for October, then stopped when he realized he couldn’t sustain the payments.

Even without the mortgage mess, Motherway and Schanker would be in trouble. Since most of their furniture was destroyed in the storm, they bought new pieces for the apartment, putting the purchases on credit cards. Between that and the loans for their new cars, they’re shelling out about $2,500 a month.

After repairing the boiler and electrical panel, they’re also paying utility bills for both the apartment and the house — they need lights in the house so they can work on it and heat so the pipes don’t freeze. Meanwhile, premiums for their homeowners policy have doubled. State Farm has been pulling out of coastal New York because of the higher risk of severe weather and did not renew their policy. Unable to find alternative coverage, Wells Fargo “force placed” them with an expensive specialty carrier.

After reviewing their finances, certified financial planners Mark Sallinger and Michael Terry of MTP Advisors in Maspeth, N.Y., initially believed the challenges the two face are so severe that Motherway might need to declare bankruptcy.

“Even if you take the mortgage out of the equation, you’re barely keeping your heads above water,” Sallinger told them in an early meeting. Bankruptcy, he said, would free the couple of their biggest debts and wouldn’t affect Schanker’s credit standing, since the two aren’t married and the house is in Motherway’s name only.

That suggestion did not go over well. “It feels wrong to walk away and let the whole thing defeat us,” says Schanker. “We’re not ready to give up.”

THE ADVICE

Working with Motherway and Schanker for several weeks more this fall, Sallinger, Terry, and Jeffrey Gould, a private insurance adjuster from Baltimore, re-assessed the couple’s options. The experts came up with a plan to get the family out of the quagmire.

File an amended claim — stat. Multiple go-rounds with adjusters are common with complex insurance claims, says Gould. Flood programs are particular sticklers for details, demanding exhaustive documentation. After a major storm, Gould also notes, adjusters are loaded with claims and may rush, miscoding items in estimating software or missing them altogether. Small oversights can add up quickly.

All these factors came into play with Motherway’s claims, says Gould, who was able to identify dozens of items that either were missing from the original claims or had been underestimated. For instance, there was no listing for the baseboard heating system on the first floor, which was destroyed by flooding, or for a damaged crawlspace. The original adjuster also didn’t note certain upgraded materials, such as higher-quality wood subflooring.

After getting detailed estimates for these items, Gould prepared a new 14-page claim for $112,000, or nearly $30,000 more than they’ve gotten from the flood insurer so far. “These are conservative estimates I’m confident they’ll get,” says Gould. The higher amount would bring the official damage total to more than 50% of the home’s assessed value, qualifying Motherway for up to $30,000 in FEMA grants to help offset the cost of bringing the house up to code.

Get multiple bids for rebuilding. Even if the amended claim is successful, Motherway and Schanker will still not have enough to rebuild, if the estimates they’ve gotten are accurate. Gould urges the couple to get at least two bids from general contractors experienced with flood damage, rather than relying on piecemeal estimates from individual plumbers, electricians, and other workers. The adviser believes repairs to the 750-square-foot first floor, plus the support piles, should run far less than the $260,000 Motherway initially quoted.

The couple can also help close the gap by applying for a low-interest loan from the Small Business Administration, which provides disaster relief to homeowners as well as businesses. The couple already received a $30,000 SBA loan to help replace their appliances and furniture since they did not have contents coverage. Their amended insurance claim would qualify them for up to $40,000 more.

Clean up the mortgage mess. Sallinger says it’s imperative for them to negotiate a new deal with Wells Fargo. Ideally they’d be allowed to make reduced payments of $1,200 a month until they’re back in the house, then tack on the past due amount to the principal. At the least, the couple could accept the bank’s offer to pay $1,600 a month for three months, then try to negotiate an extension until they’ve done enough work on the house to qualify for a loan modification.

Wells Fargo has indicated to MONEY the bank is willing to work with Motherway, but he’ll need to keep the disaster specialist he’s working with apprised of his progress in rebuilding the house and stay current with the reduced payments.

Erase the red ink. To boost their income, Sallinger suggests Schanker could temporarily reduce her 401(k) contributions from 13% to 6% (she’d still qualify for a full company match). Motherway, who helps support two older daughters, could also bump up his exemptions from two to six without triggering a tax bill, says his accountant, John Bernet of Port Jefferson Station, N.Y., who was brought in for consultation. Total extra income: $600 a month.

In addition, Sallinger proposes that Motherway and Schanker use part of the proceeds from their low-interest SBA loan (monthly payment: $125) to erase their high-interest credit card debt (monthly payment: about $1,700). Replacing Schanker’s BMW with a cheaper, used vehicle could drop her car payments by more than half. Along with smaller cuts in discretionary expenses such as meals out, these steps should bring the couple’s expenses in line with their pay.

Get better, cheaper protection. Motherway might be able to lower his homeowners premiums by buying “builder’s risk” insurance, which provides coverage during renovations, from a specialty carrier. He might also get a lower-priced policy through the state-backed insurer of last resort, New York Property Insurance Underwriting Association. Once the repairs to the house are done, Motherway can reapply for traditional insurance.

One extra insurance expense the couple should take on, Terry says: life and disability protection. Around $84 a month will buy a $500,000 term policy for each of them, according to Accuquote. Terry also recommends disability insurance for Motherway, the higher earner; roughly $165 a month buys him $5,000 in monthly income.

More hopeful after hearing the recommendations, Motherway and Schanker say they’ll do whatever it takes. They’re keenly aware their situation could have been a lot worse: Two women drowned the next street over, as did the man who lived on the corner. Nugent Avenue itself remains lifeless; many of their neighbors haven’t been able to go home yet either.

Reflecting back over the past year, the couple are also quick to point out that not all of it has been bad. “So many people have been generous and kind to us,” says Schanker. Still, they’re eager to move on and to finally be able to put Hurricane Sandy behind them. Says Motherway: “You just hope it’s the kind of storm that happens only once every 100 years.”

MONEY Retirement

Use Your Home to Boost Retirement Savings

Do you dream of leaving full-time work behind at 60, or even sooner? In MONEY’s 2014 Retirement Guide, you’ll learn the five essential rules for pulling off early retirement — rules built on tough lessons from recent years and new thinking about investing.

Rule 3: Be grateful, not greedy, about your gains

The housing market’s recent recovery may be one of the things that’s giving you the confidence — and the wherewithal — to retire ahead of schedule. Home prices in 20 major metro areas are up 12% over the past year, the biggest gain since 2006, according to the widely followed S&P/Case-Shiller home price index.

In seven of those markets, values are higher than or nearing their pre-crash peak, says David Blitzer, managing director at S&P Dow Jones Indices. American homeowners have seen their equity rise more than $2 trillion in just the past year, according to the Federal Reserve.

Alas, you can’t count on a housing boom to keep padding your net worth. With rising mortgage rates and tepid economic growth, the pace of price gains is expected to slow. “A year from now home prices will be higher, but half the double-digit gains we’ve seen,” says Blitzer.

You need to set realistic expectations for what your home can do for you, and plan prudently with what you have. That might mean leaving your old digs behind.

What to do

Lose two bedrooms. Moving out of your home of decades can pay off in two ways. By selling into a strong market now and buying a smaller house, you can lock in your good fortune, letting you add to your savings or wipe out any lingering debts.

Related: How much house can you afford?

Plus, if retiring early means learning to live on less, there’s no better way to do that than to cut your housing costs, which typically eat up 40% of retirees’ budgets, according to the Consumer Expenditure Survey.

Get out of town. Only 10% of retirees pick up stakes, though boomers look to be a bit more likely to relocate than previous generations were. In a 2012 AARP survey, two in 10 boomers said they planned to move in retirement.

“Boomers are different,” says Fred Brock, author of Retire on Less Than You Think. “They are willing to move to cheaper parts of the country.” With families more mobile, he adds, you don’t need to be tied to one place to stay near your kids.

Join this minority and move to a town with lower property taxes and lower living costs, as well as cheaper homes, and you can leverage your profits even more. That’s what Sheri and Bill Pyle did when they sold their three-bedroom Cape Cod outside Chicago for $185,000, paid cash for a $128,000 four-bedroom ranch in Tennessee, retired a home equity line and car loan, and added $30,000 to their savings.

And though their income is less than 40% of the $126,000 they used to earn, their cost of living is so low that they are able to get by on their combined Social Security, leaving their $400,000 in retirement savings to grow for now.

Their property taxes plummeted from $7,000 to $500 a year. Milder winters mean their heating bills are a third of what they used to pay. “We could never have done it if we stayed in Chicago,” says Sheri.

Beware the trap of leisure fees. Whether you downsize locally or across the country, it’s crucial that you don’t simply trade maintenance costs for steep association fees.

“I see a lot of people who move into a new home for retirement, and their cost of living goes up, not down,” says Colorado Springs financial planner Linda Leitz, national chair of the National Association of Personal Financial Advisors.

When Gundy and Karen Gunderson retired in 2007, the Seattle couple bought a home in a gated country-club community in Las Vegas. But they were surprised at how quickly the costs added up. Gundy, 66, a former commercial airline pilot, and Karen, 67, a homemaker, estimate they were spending $1,000 a month on dues for the private golf course, tennis and fitness classes, the club’s restaurant minimum, and maintenance on their pool and lawn.

Related: 10 Best Places to Retire

“We ran the numbers and knew we had to make an adjustment if we wanted our money to last,” says Gundy. So this year they downsized a second time, to a Henderson, Nev., retirement community overlooking two public golf courses. Now all they pay is a $93 monthly association fee.

Invest in staying put. All this said, what if you really don’t want to leave your home? At a minimum, early retirees told us they avoided carrying a mortgage into retirement, as 30% of retirees do.

While you’re still working, invest in improvements that will cut costs later, like replacing old appliances and drafty windows and upgrading your heat and electrical systems. “If you’ve been in your home a long time, there’s a lot you can do to make it less costly,” says Stillwater, Okla., financial planner Louise Schroeder.

MORE: New rules for early retirement

Rule 1: Early retirees: Don’t fear losing your health insurance

Rule 2: Getting ready to retire? Save more, spend less

Rule 4: Get the first decade of retirement right

Rule 5: Retiring? Time to look for a part-time gig

MONEY real estate

Best Places to Retire

Love the culture and excitement of urban life, but loathe the congestion and cost? One of these ‘second cities’ could be your first-choice retirement spot.

If the thought of retiring to a sleepy beach town or country hamlet bores you silly, you’re not alone. Increasingly, retirees are “interested in urban center communities,” says John McIlwain, senior fellow at the Urban Land Institute. “They don’t want to be isolated out in the suburbs.” It’s not surprising that people want to spend their post-work years surrounded by the arts, cutting-edge health care, and diverse neighbors, but the cons of urban living (like cost) can be daunting. So we set out to find places that won’t ding your nest egg with high taxes and nosebleed prices, yet still have great attractions and plenty of your peers. Here are five affordable small cities you may one day want to call home.

  • Boise, Idaho

    © imagebroker / Alamy

    Moving to a mountain town means easy access to skiing, hiking, golf, fly-fishing, and more. Unfortunately, it also usually means jaw-dropping home prices, a dinky airport, limited health care, and tourists galore. Not in Boise.

    Yes, locals here can ski at Bogus Basin 16 miles from downtown, stroll or bike 85 miles of trails, and paddle or fish on the Boise River, which runs through town. But they’ll also find low taxes and affordable homes.

    Plus, Boise has become a nucleus of culture and health care. Saint Alphonsus Regional Medical Center is ranked in the top 5% of hospitals nationwide for clinical performance.

    Where to live

    North and East of downtown: Prices in the city center are steep, so buyers should concentrate on the surrounding neighborhoods, says Boise real estate broker Jason G. Smith. “Traffic isn’t an issue,” he says. “So you don’t need to be right downtown to enjoy it.”

    You’ll find two-bedroom condos or small single-family houses priced at about $300,000 in the North End.
    Southeast and Northwest Boise: On a tighter budget? Head to these neighborhoods (located about 10 minutes from the city center) for homes starting around $200,000.

    What to do

    Outdoors: Walk along the Boise River Greenbelt or explore the trails winding out of Hull’s Gulch or Camel’s Back Park. The city has two open-air Saturday markets, which are a great place to find produce and bump into friends.
    Art: The Boise Art Museum has 3,000 permanent works and presents diverse exhibitions ranging from site-specific installations to collections of ancient artifacts.
    Performance: Grab tickets for the opera, philharmonic, or ballet. Boise State’s Morrison Center hosts national tours of Broadway shows, stand-up comedy, and live music, while the Shakespeare Festival fills a 770-seat outdoor amphitheater.

    And there’s more to come: Construction is under way for a new $70 million, 65,000-square-foot cultural center, slated to open in 2015.

    Taxes

    Retirement benefits are taxed, though some types of pensions qualify for a deduction. There is no inheritance or estate tax.

    • Income tax: Highest is 7.4%
    • Sales tax: 6%
    • Median property tax: $1,230
  • Spokane, Wash.

    © Andre Jenny / Alamy

    Unlike gloomy Seattle, Spokane basks in about 260 days of sunshine a year. Want to get out and soak up that vitamin D? The Spokane area has 76 lakes and five ski resorts, plus plenty of golf courses and wineries.

    The city has urban appeal too, with a downtown that’s become a destination for retirees looking to trade high maintenance homes for condos that are walking distance from restaurants, art galleries, and theaters.

    Spokane residents do pay a hefty 8.7% sales tax, but the state has no income tax.

MONEY

Should I buy beach property?

Should I invest in undeveloped beach property? The lots have dropped in price considerably. — Mike Mannion, Salisbury, Md.

Test the waters first. A beach lot may have a lower cost of entry than an investment in a beach home, says Gary Eldred, author of Investing in Real Estate, but your risk is much greater.

At issue: conditions that limit what you or anyone else can do with the land, such as access to utilities and zoning that restricts the size and location of any structures.

Related: Half of Millennials Will Ask Mom and Dad to Help Them Buy a Home

You’ll need a good agent and appraiser to determine whether that price drop signifies a deal or simply reflects news that has lowered the land’s value.

A neighbor might have an easement on the property, for example, that restricts the area you could build upon, says Sheila Dodson, executive director of the Coastal Association of Realtors.

MONEY homeowners insurance

Homeowners Insurance: Covered? Don’t Be So Sure

Your homeowners insurance policy may not protect you as much as you think, as insurers have hiked deductibles and scaled back on coverage. Here's how to make sure you have the home protection you need.

Bought or renewed a homeowners insurance policy lately?

You’ve no doubt noticed that premiums have gotten pretty pricey. Rates have climbed 69% over the past decade to an average of $1,000 a year.

What you may not realize is that you could be facing another vast expense. Insurers have also been quietly hiking deductibles, scaling back basic coverage, and adding new restrictions.

Coverage now varies widely among carriers, but that’s not always clear when you’re shopping around, says Daniel Schwarcz, a University of Minnesota professor who has studied hundreds of policies.

“Consumers shop almost entirely on price and reputation,” notes Schwarcz, and exclusion clauses are often written in legalese and buried in a policy that runs dozens of pages. Moreover, comparison shopping is difficult, since consumers rarely get a copy of the policy before they buy.

When disaster strikes, you could get hit with tens of thousands of dollars in costs for damages that you thought were covered.

The reasons for the changes are complex. Homeowners is one of the least profitable types of insurance; on average, over the past 10 years firms have lost money on these policies, according to the National Association of Insurance Commissioners (NAIC).

Insurers say that’s largely because of unpredictable weather. There were 953 “weather events” insurers considered catastrophes in the U.S. in the past five years, compared with 602 in the previous five, according to industry data.

Related: 10 things you need to know about homeowners insurance

In 2011 the amount insurers paid out for the average claim was nearly double the amount in 2002, according to the Insurance Research Council. More trouble: Firms make money in part by investing your premiums; that means at times they can recoup higher claims costs with market returns. The financial crisis and low interest rates haven’t provided much relief there.

To cope with squeezed profits — and so they could beef up their reserves to pay for freak massive storms — insurers stopped writing new policies in some disaster-prone areas in recent years and pushed for higher premiums. Regulators pushed back on the prices. “If we allowed the rate increases companies wanted, nobody would be able to afford insurance,” says Kevin McCarty, Florida’s insurance commissioner and a past NAIC president.

So insurers made up the gap by cutting coverage, leaving homeowners in a precarious position, say consumer advocates. “It’s easy to think you’re covered when you’re not,” says Amy Bach, executive director of advocacy group United Policyholders, which has lobbied the states to reject stripped-down policies and make coverage more transparent.

For the foreseeable future, however, the onus is on you to make sure your biggest investment is fully protected. In the following you’ll find out where your coverage most likely falls short and learn the best way to plug those holes.

WATER: Coverage is thinner than you think.

A shower pipe bursts behind the bathroom wall — you’re covered, right? Maybe not.

In the past decade insurers have scaled back significantly on covering that cracked pipe, leaky toilet, and clogged drain.

Water coverage began getting less generous after a jury in a 2001 Texas lawsuit involving toxic mold awarded a family more than $30 million (later slashed). Toxic mold grows in the damp, and nowadays payments for mold claims are all over the map: 60% of the insurers that Schwarcz studied in a recent analysis of 60 policies in six states capped mold coverage at $2,500 to $50,000; another third paid nothing.

The cutbacks now extend to broader water damage. In Texas, for example, the insurance department found that nine of 10 policies in 2010 were less generous than the state-approved “prescribed” policy (a benchmark created by regulators), nearly double the number in 2002. Your policy probably used to exclude claims from water leaks that occurred over a period of weeks, months, or years. Now it probably specifies that the leak can’t have lasted longer than 14 days — even if the source was hidden, say, behind a wall or under a foundation.

Those limitations snagged Fredi Cohen, who is suing a Florida insurer over its refusal to pay for a burst shower pipe in her late mother’s condo that caused an estimated $35,000 in damage in June 2011. Three weeks later an engineering firm hired by the insurer found that the plumbing had been leaking for more than 14 days. By that time, Cohen says, the damage was so old it was impossible for her to dispute the firm’s findings. “I was astonished,” Cohen says.

Solution

Up your protection. Get a rider that covers sewer and drain backups — generally excluded from policies — especially if you have a sump pump. Expect to pay 10% to 20% of your premium for such a package. On a Seattle home insured with Safeco for $400,000, $20,000 in such coverage costs $146 a year, according to NRG Insurance.

Be vigilant about prevention. Place wireless water alarms ($25 for three) under your sinks and behind the water heater and washer — they’ll go off at the smallest leak. Eye your water bill for unusual activity, which could alert you to a larger problem (say, a leaky hose in the yard).

REPAIR: Real-world costs may exceed your check.

Insurers used to provide a guarantee that they’d pay to fix your home no matter what. But after so many widespread catastrophes, they’ve pared back.

One reason is the “demand surge.” After a big storm, contractors and building supplies are in unusually short supply. The temporary shortage drives up prices. Today you’ll rarely find guarantees, and certainly not in disaster-prone states (instead, your policy will simply say it covers “replacement costs”).

Related: 4 tips from a serial home remodeler

If you want better protection, you need to buy optional extra insurance, or “extended” replacement, which kicks in to deal with unforeseen costs. Also, insurers have added lots of caps and limitations. For example, many eliminated coverage for screened-in pool enclosures and patios after Hurricane Wilma in 2005 tripled the price for those items. Allstate’s new House & Home policy says the older the roof, the less Allstate pays toward replacing it.

Even if your replacement benefit will pay for your losses, you may be subject to picky rules for filing claims. Your insurer first will hand you a check for what it calculates is the actual cash value of what you’ve lost, accounting for depreciation. Then, once you actually replace the items or rebuild, insurers pay the extra cost. Specific requirements vary among carriers. Some say only that homeowners must notify their insurers of their intent to replace within six months. Others mandate that the work must be completed in six months. Policies also differ by state; some require insurers to offer more time, such as Maryland (two years) and California (one year).

Paula and Michael Sher were tripped up by this kind of fine print after a fire severely damaged their Long Island home in July 2008. Between getting permits and winter storm delays, they say rebuilding took more than two years, but their Allstate policy said they had to have been finished within six months to claim $97,000 in extra replacement-cost benefits. The Shers sued, saying the requirement is unreasonable. An Allstate executive says the company has found that 180 days is “more than enough time” in the majority of cases. After discussions with regulators on multiple complaints, however, Allstate changed its New York policies, so it now allows two years for rebuilding (the Shers’ case is pending).

Solution

Get extended replacement coverage. A typical rider costs about 10% of your premium and will tack an extra 25% onto your replacement benefit, enough to cover most situations. Also buy replacement-cost coverage for your personal property (about 10% of the personal-property premium); basic policies typically reimburse based on the depreciated value.

Understand what you’re getting. Few homeowners take the time to read their policy and, even if they do, may not realize how one phrase — sometimes one word — can mean thousands of dollars come claim time.

Related: Home prices – your local market forecast

Gregory and Moira Taylor, for example, thought they were covered when a heavy 2010 storm caused the carport at their Maryland home to collapse. Their State Farm policy included the “sudden, entire collapse of a building”; plus, their agent told them it was covered, according to state insurance department documents. State Farm, however, denied the $1,706 claim, saying a carport does not meet the criteria for a building (which must have a roof and at least three walls). The Maryland insurance department agreed with State Farm, but the assistant attorney general is appealing the decision to the state supreme court.

Get it in writing. Make sure to document your steps in rebuilding, such as interviewing contractors and applying for permits.

Ask for an extension. Think you won’t meet the time limit? Call your insurer and request a reprieve. If you’re denied, file a complaint with your state insurance department and ask it to intervene on your behalf.

Make a thorough home inventory. Document every inch of your home and you lower the chances you’ll have to fight over coverage for your personal property. Use the free app from knowyourstuff.org, or hire a home inventory professional (find one through nahip.com) for $300 to $600.

WIND: Insurers make use of lots of loopholes.

Homeowners’ deductibles typically run $500 to $2,500 — unless damage is due to a windstorm.

Special wind deductibles were first introduced after Hurricane Andrew in 1992, and they’ve now been extended to 19 states plus the District of Columbia — and in some cases to tornadoes and hailstorms.

Instead of a set amount, you can opt for a percentage of your property coverage, typically 2% to 5%. Put another way, for a home insured for $400,000 with a 5% deductible, you’d be out $20,000 before your insurer forks over a dime.

Related: Hurricane deductible could cost homeowners thousands

Solution

Stay with a 2% deductible. Upping to 5% will offer only minimal savings on premiums, says agent Billy Wagner of Brightway Insurance in Florida.

Know where you’ll get the cash. You need enough cash in reserve to cover the largest deductible you will incur if a windstorm hits. If it would take a while to save that much cash, open a home-equity line of credit to draw on when you need it, says Dallas financial planner Michael Anderson.

REBUILD: Your policy may not pay for an up-to-date dwelling.

Insurance is designed to rebuild the home you have. But especially with older homes, newer, tougher building codes can make an exact replacement impossible unless you pay more than the cost of your original home. Historically a typical policy allotted 10% of your dwelling coverage toward the extra expenses of satisfying modern building codes.

These days policies vary widely, Schwarcz has found. In his analysis, 20 didn’t cover the extra costs at all unless you had added a rider on your policy; another eight offered coverage that wouldn’t cover the full expense.

Solution

Opt for extra coverage for an older home. If your home is less than 10 years old, 10% of dwelling coverage for code updates probably suffices — verify that your policy includes it.

For older homes, and in disaster-prone areas where codes change more rapidly, upgrade your policy to include 20% for “ordinance and law.” Costs depend on location, says Kurt Thoennessen of Ericson Insurance; for a home insured for $400,000, going from 10% to 20% may cost $25 a year in Connecticut but $200 in Florida. The cost also varies widely by carrier; some price it high because they would prefer not to insure older homes, he says.

To help pay for this, you may want to increase your basic deductible. Going from a $500 to a $1,000 deductible will cut your homeowners premium at least 10% (it’s not worth making a bunch of small claims anyway; you risk your carrier dropping your coverage).

FLOOD: Coastal dwellers are taking a big risk.

Private insurers long ago stopped covering flood damage, so homeowners have to purchase it through the National Flood Insurance Program.

There are two problems with that. One, many people outside high-risk zones don’t have it — including some who probably should. Two, the federal program maxes out coverage at $250,000 for the dwelling and $100,000 for your personal property, which could easily fall short of the amount needed to rebuild your home.

Flood insurance also has its own restrictions. Among them: It won’t replace trees, decks, and pools, or help you fix your finished basement. It won’t pay for personal property or for living expenses you incur while your home is uninhabitable. And as homeowners affected by storms Irene and Sandy in the Northeast have discovered, some claims are being denied if even an inch of the first floor is below ground.

Getting stuck with only $250,000 in coverage could happen more often than you imagine. When damage results from both wind and flooding — as in most big storms — insurers want proof that they, and not flood insurance, should pay. After Hurricane Katrina reduced thousands of homes to mere slabs, insurers simply denied claims because there was no proof the damage wasn’t caused by flood (courts overturned most of those denials).

Solution

Pony up for flood coverage if you live near any body of water. Even melted snow can cause a flood, says the Insurance Information Institute. Rates depend on your home’s age and location.

Live in a high-risk zone? Though expensive, you may want “excess” flood insurance, sold by only a few insurers. Another $250,000 in dwelling coverage and $100,000 in contents might run about $1,000, says Wagner.

Finally, be realistic. Before deciding to transform your basement into the man cave of your dreams, understand that you’ll have to foot the bill for flood damage. Avoid keeping valuable belongings there if you live near the water, or at least plan to remove them before a storm, says the III’s Jeanne Salvatore.

Looking to buy a coastal home? Keep in mind that by drastically cutting back coverage or refusing to write policies at all in some highly storm-prone areas, insurers have effectively declared these places too risky to inhabit. Says Salvatore: “Insurance costs are something people really need to think about to begin with when they buy a house.”

HOW TO SHOP FOR A POLICY

The myriad ways insurers now offer homeowners insurance makes comparison shopping challenging—but critical. Use the four tips below to help you get the best possible deal.

Get five quotes. Agents may be tempted to quote cheaper policies in their eagerness to land the sale. So talk to three, including at least one who can give you multiple quotes. (Find one at iiaba.net; click on Contact Us.)

Compare. A few state insurance departments, such as Nevada’s, post sample policies online; Texas has a policy comparison tool at opic.state.tx.us (click on Compare Policies). Your state’s policies will be similar.

Ask the right questions. Your agent should give you a list of all the riders each carrier provides; bundling riders may earn you a discount. Ask how replacement-cost coverage is handled.

Request a sample policy. Many agents will provide them in advance, even though they don’t have to. And once you buy, make sure you read the policy. You can always cancel and get a refund.

An earlier version of the story incorrectly stated that Hurricane Wilma occurred in 2006. The storm actually took place in 2005.

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