At first glance, it is maddening that the government would use your hard-earned tax dollars to buy out a private investor. A free market usually exacts its own payback for those who demonstrate a lack of both resources and judgment.
But there are times when a seemingly generous subsidy to an individual also benefits many. Such was the case with John Parrott, a Tampa businessman, who tried to turn a quick buck by flipping a house in Weeki Wachee and eventually turned to the federal government for help. Parrott's story was told recently by Times staff writer Barbara Behrendt, who documented this unusual circumstance.
Parrott paid $449,500 for a multistory duplex in Weeki Wachee Gardens in 2005. His plan was to fix it up and resell it for about a $20,000 profit. Despite the availability of public records that would have warned him of his risk, Parrott realized too late that the property frequently flooded, and he wound up spending much more than he anticipated on repairs. Then he put it on the market for $575,000, apparently eager to sell it to someone as gullible and greedy as he.
With no takers and the red-hot housing market devolving into an icy bottleneck, Parrott lowered the asking price to $415,000. Still without a buyer, he turned to the Federal Emergency Management Agency, which administers a grant program that purchases properties that have filed repeated flood insurance claims, then razes them and protects the land from ever being developed. It was the first time this particular adjunct of the National Flood Insurance Program was used in Hernando County.
The National Flood Insurance Program is the only insurance option for many residents in flood-prone areas. Its cost is determined by the number of claims that are filed. So, it clearly is in the interest of both the government and policyholders to cut down on claims in order to cut down on premiums.
It is a systematic approach to a problem that transcends the obvious benefit to individuals who qualify for the program, and extends less direct assistance to an entire class of homeowners. Those who might be inclined to object to such buyouts should ponder the bigger picture.
However, there is room for improvement.
When FEMA bought out Parrott, it authorized a payment of $490,000. That is about $40,000 more than Parrott paid for the property, and $214,000 more than the property appraisal. That transaction was more than fair; it was charitable.
FEMA should re-examine its guidelines to make the government's offer more closely reflect the appraised property value. If not, it encourages abuse of a viable program by those who are more interested in taking taxpayers for a ride than they are in taking ownership of a home.