“Perfect Storm” of Mortgage, Debt Problems in Central Florida
A “perfect storm” of Florida mortgage delinquencies, higher energy prices and other financial troubles have caused personal bankruptcies to spike in Central Florida this year, the Orlando Sentinel reports.
Nearly 1,300 personal bankruptcy cases were filed in Orlando during the first three months of 2007, nearly twice as many as during the first quarter of last year.
And that may be just the beginning.
Bankruptcy trustees, lawyers, clerks, credit counselors - everyone tied to the process - all report seeing more cash-strapped people coming through the door on their way to insolvency.
“Some people are just drowning in everything, whether it’s debt, job loss, divorce or some health issue,” said George Janas, a credit counselor and managing partner of Orlando-based Consumer Debt Counselors.
“They’ve been living so close to the edge financially - when something big hits, it’s enough to put them behind. And they can’t catch up again.”
Personal-bankruptcy cases for the entire Middle District, which extends from Fort Myers to Jacksonville, jumped nearly 80 percent in the first quarter, to 5,308 filings, compared wit a year earlier.
During the five-year housing boom, many of those headed for trouble were able to escape through mortgage refinancing, extracting equity that could be used to pay off debt.
But now, with home prices flat or in decline, in Florida and throughout much of the nation, getting a home equity loan or refinancing is often an not available option.
“Prices have tapered off, and there’s no more equity to use in a mortgage refinance,” said Doug Neway, an Orlando consumer-bankruptcy lawyer.
“There are many who want to save their homes, but some people are in such bad shape, they really just need to walk away from them.”
Personal-bankruptcy cases still lag the totals recorded in 2004 and 2005, when there was a record run-up in filings ahead of the historic bankruptcy-reform law, which took effect in October 2005.
“Bankruptcies are down, quality credit counseling is up, and consumers have access to better information about financial management,” Steve Bartlett, CEO of the Financial Services Roundtable, a banking industry trade group based in Washington, said during recent congressional testimony.
Many people are now taking huge hits from ill-advised purchases made during the housing market boom, especially those who financed homes usings adjustable-rate mortgages, which are now creeping up to unaffordable levels in some cases.
“There has been a perceptible increase in filings by people who are trying to prevent foreclosure,” said Jonathan Alper, a bankruptcy lawyer in Lake Mary. “I don’t think we’ve begun to see the full effect of that.”
The Florida housing market boom also lured some people into buying a second home as an investment property, often with the aid of financing such as “teaser rate” or interest-only mortgages they can no longer make payments on.
If they qualify to file a Chapter 7 personal bankruptcy, he noted, it can lead to the liquidation of their assets, including the second home, but lets them protect their primary residence.
Skyrocketing insurance premiums and property taxes, along with rising energy prices and that old standard, credit card debt, are also taking their toll.
In the coming months, it will be interesting to see if this trend continues, or if people learn more about the debt consolidation mortgage options available to them and stop this problem before it starts.
SOURCE: Orlando Sentinel