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If the state takes over the property and turns it back into a wetland, then the property owner is entitled to just compensation pursuant to the Fifth Amendment to the United States Constitution, at fair market value.

What is the "fair market value" of a home in a neighborhood that will not be rebuilt?

It would be cheaper to just pay off what remains of the mortgages. Nobody is guaranteed a return on a home destroyed but with no insurance.

Well in Oakland, all those wonderful craftsman and such homes in the hills built around 1915 or so that burned down in the Oakland fire about 15 years ago, were way underinsured on a replacement cost basis. Where are those master Italian carpenters when you need them? No problem. Just push the right political buttons, and threaten to revoke the insurance company licenses to sell insurance, and in a jurisdiction as rich and large as California, voila, the deus ex machina appears, and the insurance companies just write the replacement cost checks!

The same with the Northridge earthquake. The insurance company started with about 17K, and ended up with 95K on my triplex (a place I knew was poorly built in places, and really, really needed quake insurance), and the pad became much better than it had before. (Pity the softwall garage didn't collapse. I am having to pay a fair amount now to avoid that collapsing in the next one, given that the deductibles are so high.) There is safety in numbers methinks.

What is the "fair market value" of a home in a neighborhood that will not be rebuilt?

"Will not be rebuilt" has a built in assumption -- that the land will be converted to a wetland. Which means that some government is seizing it pursuant to the eminent domain process.

The government will hire an appraiser, the property owner will hire an appraiser, and a jury will decide. A local jury.