Sitting on my couch with my family praying for those hit by the category 4 hurricane named Katrina, I could not help but wonder what the economic impact on the people would be within the next 3 to 6 months. While the death toll rises, looters take to the street, and President Bush abruptly ends his vacation to provide federal assistance to cover the estimated 23 billion dollars in damages, the day to day life of the everyday Sally or Joe presents an equally dismal and shocking outlook for financial recovery.

As a Certified Housing Counselor and loss mitigation expert, I have counseled well over 10,000 homeowners. Within all of those interviews, a startling pattern repeats itself in that very, very few people have established an emergency account or any significant savings, have health insurance, have disability insurance, or have a clue that living paycheck to paycheck is riskier long term that bungee jumping. All of us who are responsible enough to have raised a family know by now that we are supposed to save money for a rainy day. Specifically, three months of living expenses is what is prescribed by every financial guru from Dave Ramsey to Donald Trump. Then the question is why doesnt anyone take that advice before it is too late?

There is a certain arrogance of the person who feels secure in their job title, their health and zeal for life that prevents the planning for the unexpected. It is as if we believe that planning for a negative event will actually increase the likelihood of that event happening to us sooner. Whatever the reason, the failure to develop an asset protection plan and an emergency savings has catastrophic effects on our ability to provide for and to protect our families.

Everyday Joe

Lets take a look at the every day Joe that is now dealing with the aftermath of the storm in Lousiana, Georgia and Mississippi, the areas hardest hit. Joe brings home $1,000 per week and he received his check early in lieu of the mandatory evacuation of New Orleans. Joe is married to Sally who also received her check of $700 per week early and they head towards Atlanta Georgia. Did Joe and Sally pay any bills before they left? Electricity, water, mortgage, car payment, cable, car insurance, etc? Let us consider that they will be paying for a motel room for an undetermined amount of time and will have eating and travel expenses for a family of 4. They have a household income of $88, 392 per year and live a good life. However, they had no money set aside that could be tapped for this emergency. Take a moment now look at your income and determine if you are saving enough money that is set aside for emergencies!

In the $65.00 a night motel room, Joe and Sally are looking at the news of the devastation of their city and thanking GOD for sparing their lives. They are discussing the fact that they have no jobs to go back to and that it may take weeks or even months before New Orleans is pumped dry and their jobs are reopened. How will they be paid? Do they even still have jobs? What will they do with ever depleting funds and no home to return to? What will be the reaction of their mortgage company if the mortgage is not paid within the next 3 to 4 months? How will the mortgage delinquency be handled while the home is being rebuilt by the insurance company? I can assure you that these are all legitimate questions and ones that have caused many people to lose homes when the mortgage companies decided that they would not rebuild.

Forced Placed Insurance

For millions of Americans who struggle, the first thing that may lapse in the fire insurance protection on the home. If this happens the lender has the right to put insurance on the property and to establish an escrow account to collect premium payments from the borrower. This insurance is normally much more expensive and the lender is the beneficiary.

In 2003 we represented an elderly gentleman from New York whose home caught on fire and suffered severe damage while he was in a repayment plan. The insurance company agreed to pay the damages and sent the money to the lender. The lender, who was the sole beneficiary, decided that they would apply the $50,000 check to the mortgage balance and foreclose on the home. After many hours of negotiations and contacting insurance governing bodies, the money was properly allocated for repairs.

While this may be legally permissible (allowed by the mortgage agreement you signed at closing), certainly it was morally unfair because our client did not know how forced place insurance worked or that it did not cover his home in case of damage. Are you paying double for insurance owned by the mortgage company? Do you have a copy of your fire insurance policy or did you leave that insurance protection to the lender? In other words, if your home burned down tomorrow or was damaged in a hail storm would you be properly protected and able to rebuild or to repair the damage?

Responsibility

Anyone reading this will agree that this is not Joe and Sallys fault. However, the economic consequences are just as harsh for both seen and unforeseen events that we are not prepared for. While they may not be totally out of the woods, a nest egg of 3 to 4 months of living expenses would certainly come in handy and relieve the stress on the family.

The issue for me is responsible preparation. After going through a few storms, it may be time to set aside some money saved for the childrens college fund to purchase a generator. Likewise, with all the news of the new bankruptcy law that takes effect on October 17, 2005, it will be very difficult to use bankruptcy to stop foreclosure sale of homes or repossession of vehicles during times of financial hardship. According to the American Bankruptcy Institute this will affect over 400,000 people per year.

It is your responsibility, and your responsibility alone to educate yourself as a consumer, as a homeowner, and as the head of your household for the changes in the American financial system. The book, How to Save Your Home, ISBN#0-9753754-0-7, $19.95, SYH University, 2005, available at Amazon.com, is a great resource that should be read by every homeowner, renter, or investor interested in the problem of building wealth.

Hope is fueled by meticulous preparation, knowledge and education. It is time for everyone across the nation to get a better grip on their financial future.