Tuesday, August 07, 2007

Orlando Bankruptcies Up

The housing boom may seem a distant memory, but experts say the real-estate speculation and "creative" financing it generated are now driving many investors and homeowners into bankruptcy, especially in Central Florida.

Personal bankruptcies in the Orlando area were up 80 percent during the first half of 2007 -- the biggest rate increase in the federal court system's Middle District of Florida, which includes Jacksonville and Tampa. Orlando's jump in bankruptcies also far outstripped the national rate, which was up 43 percent compared with the first six months of 2006.

Orlando bankruptcy lawyer Richard Heller is seeing a lot of people these days who thought they had placed a sure bet during the recent housing boom.

Instead, their gamble on the housing market is sending many of them to the poorhouse."Some would buy land for, say, $750,000, then use all their 401(k) and other money to keep the mortgage paid," Heller said. "At the end, the best they could get for it was $550,000 -- and they'd still owe $750,000. They didn't understand the risk they were taking."Though the number of personal bankruptcies is far below the pace set during the first half of 2005, when Americans flooded the court with filings to avoid a tough federal law that took effect that October, the pace is roughly back to what it was a decade ago.And local bankruptcy lawyers say a growing number of those nearing insolvency are trapped by crushing mortgage debts.

They include vacation-home buyers, condo investors and other speculators who tried to time the market's peak. But they also include homeowners who overreached by using "creative" mortgages with adjustable rates and low down payments to finance their purchases. As those rates have risen, some borrowers' monthly payments have nearly doubled, even as their homes' values have stagnated or fallen.

As a result, Heller and other bankruptcy lawyers say their day-to-day customer traffic now rivals the period before the 2005 reform law, which was designed to discourage personal-bankruptcy filings."

In terms of consultations, we are back to the level of pre-reform days," Heller said. "Has our actual caseload of filings reached that level? No, not yet. But I'm sure it eventually will."What's happening in Central Florida is happening in Southern California and other areas of the country where speculation flourished during the real-estate boom, said Sam Gerdano, executive director of the American Bankruptcy Institute, a research group based near Washington. Courtesy Orlando Sentinel.