Dallas-Fort Worth Real Estate Investor Club

I'm not an expert on FEMA, but, if their payments work anything like insurance payments, any checks they issue should be made out to both you, if you have a valid, recorded lien against property, as well as the home owner.  If that's the case, you should be indirectly protected against the concern you raised.  After all, the property is effectively your asset as well as theirs.

I did some checking at work regarding FEMA grants.  The checks that are disbursed are not 2 party checks.  There is a penalty for not using the funds as directed but unless they are caught in an audit or by a whistleblower there is really no guarantee other than the character of the homeowner.  Likewise with an SBA disaster loan.  The funds are electronically transferred to the homeowner.  $25,000 is the max amount that can be borrowed without securing the loan.  SBA will place a subordinate lien on the house for amounts over that.  For $50K or more, there has to be a written contract with a contractor or sub.  During the course of repairs, after the initial disbursement, receipts for expenditures have to be submitted before the next disbursement is made.  With SBA, credit worthiness is also looked at and since you are the lien holder, you should be contacted to verify that payments are being made as agreed.  FEMA may also contact you to verify occupancy as a primary residence.