Just a thought - I have not used HAZUS myself, but have heard from other GIS folks who use it that it has some levels of raster processing as part of it. What potentially may be going on is that the folder it is being pointed at violates the ESRI GRID format rules, which are very strict. Therefore, try creating a very short folder name (<13 characters, or better <9 characters) and see if it then works.
Esri Grid format
The name of an Esri Grid format raster has more specific restrictions:
- The maximum number of characters is 13.
- It cannot have spaces.
- It cannot use special characters other than underscore ( "_" ).
- For tools that output an Esri Grid Stack, the stack name cannot have more than 9 characters.
- The total length of the name for a Grid and its path cannot be more than 128 characters.
Source: Output raster formats and names—ArcGIS Help | ArcGIS Desktop
Chris Donohue, GISP