Storm victim is asked to return money

The night Hurricane Sandy flooded Kathleen Pallazolla's Dongan Hills, Staten Island, home is still fresh in her mind.

Four months later, she has been able to clean up the ground floor of the home and replace moldy flooring and put up new walls.

She had flood insurance and a $10,000 advance payout in December helped some but didn't last long.

But then last month she got a call from an agent with Travelers insurance, saying there had been a mistake. The agent said they don't cover basements and they required her to give almost $8,000 back.

The issue is this: even though the room is downstairs from the front entrance of her house, Kathleen considers it a family room.  But officials are now saying it's a basement, even though the doors lead outside to the ground level.

FEMA told us it can't comment on any specific cases, but Dianna Kidder, a hazard mitigation task force specialist for FEMA said that while errors aren't common they can happen.

"Especially in the cases where adjustors are out there on the spot, they look at the damage and they say well yeah there's enough damage here to warrant an advance, and they give them an advance and come back later on and find out perhaps there was a mistake in an assessment."

FEMA said insurance companies use a formula to calculate what qualifies as a basement.

Still, Palazzolla maintains that this is not a basement and said that returning the money now would be near impossible.

Palazzolla has yet to get any official documents from requesting the money be returned, but if and when she does she says she'll consult with an attorney.