As most readers of my blog posts know, I am a different kind of mortgage professional.  I employ a wide variety of strategies to help Florida families build their wealth over time.  One of the ways I differ from most others is that I talk a lot about how a hurricane, or any other distater for that matter, can wipe out your home equity, possibly never to be seen again.

So, are you fully prepared for this hurricane season in regards to protecting the equity you have "trapped" in your home.  If you have rushed to pay off your mortgage as quickly as possible, you may not be as prepared as you think.  If a hurricane hits, there are multiple ways you could lose your home for good and all of the equity you deposited into it.

OK, what if a Category 5 hurricane were to strike the South Florida coast, packing winds in excess of 155 mph?  If it were to come ashore near the Ft. Lauderdale airport and move slowly, you would have about the worst disaster you could imagine.  Nearly every resident of Palm Beach, Broward, and Dade Counties would experience full force winds, likely endure major flooding, and obviously be without power and supplies for a long time.

As the storm tracks westward across the state, it encounters Lake Okeechobee and causes several breaches resulting in more flooding of the low-lying areas nearby and even further south as the water travels into already saturated areas.  Winds will likely have died down some most probably the area will be hit by Category 4 winds.

The storm continues across the state towards the west coast of Florida.  Now Naples, Ft. Myers, Sarasota, and even upwards to Tampa get to experience the flodding and substantial winds.  While the storm dies down more as it moves over land, it could very well reach the west coast of Florida as a Category 3 or stronger storm, depending on its path.  If it moves only slightly north, Orlando would feel its wrath as well.

As you can see, if a storm of this magnitude hits South Florida and moves along the right path for a worst case scenario, virtually everyone living in Orlando and south would have their homes damaged or destroyed. 

So what happens to your home equity then?  Most of Florida throughout this region have homes over $250,000 in value.  That is where one of the biggest problems lies.  Flood insurance for residential properties is capped at $250,000, therefore all losses exceeding that amount are out of your pocket.  Oh, and if that weren't bad enough, the lender gets the check and will most likely apply it to your mortgage as an extra principal payment, leaving you possibly with nothing.  (Commercial properties can carry flood insurance to $500,000)

If you do not have sufficient money in liquid side accounts, you are facing foreclosure and financial ruin, not question about it and you have just lost everything.  That is one reason I recommend keeping money out of your home if that "fits" your situation. 

But what if you have damage fully covered by insurance?  Well, you still will need a substantial amount of money to pay for rent or other costs associated with your living while your house is being repaired.  Repairs will likely take more than 1 year to complete, possibly several.  Likely, a disaster of this magnitude will leave you without a job also, at least for a while, complicating things further.  While lenders will waive some monthly payments, that usually only lasts two or three months, then you have to start paying that monthly mortgage again.  Failure to do so will result in foreclosure and most likely wipe out all of your home equity. 

What are the odds of a Category 5 storm hitting South Florida?  Well, I cannot state the odss on a Cat. 5 hitting South Florida, but depending on where you live in Florida the odds of being hit by a hurricane has been calculated on this website... www.floridahurricane.net.  Miami carries a 1 in 6 chance strike probability.  Key West and Palm Beach are only slightly less risky at 1 in 8 and 1 in 7 respectively.  Pensacola weighs in the same as Key West. 

As you can see, the odds favor a storm hitting South Florida and this worst case scenario could play out.  Let's hope not, but if it does, what are you doing to prepare?