April 14, 2011

Foreclosures in the Jacksonville metro area fell 50 percent year over year in the first quarter, according toRealtyTrac.

Duval, Clay, St. Johns and Baker counties had a combined 3,900 foreclosures in the first quarter. That number includes properties receiving first notices, those sold in foreclosure auctions and those taken back by the bank.

Duval County had the most foreclosure actions, at 2,634, or one in every 151 household units. That was still a 22 percent decline from the fourth quarter of 2010, and a 48 percent decline since the first quarter of 2010.

The declines mirror a state and nationwide trends, according to RealtyTrac. The research firm attributed the drop to processing delays caused by legal documents found to have problems. Experts expect foreclosure rates to rise again later this year when the legal bottlenecks are removed around the country.

Florida foreclosure activity decreased 47 percent from the previous quarter and was down 62 percent from the first quarter of 2010 — although the state still posted the nation’s eighth highest foreclosure rate with one in every 152 housing units with a foreclosure filing during the first quarter.

Read more: Foreclosures drop 50% in Jax metro area | Jacksonville Business Journal

Jacksonville area bankruptcy filings in March hit the highest level in more than four years, and local bankruptcy attorneys say it could get worse this year before it gets better.

According to U.S. Bankruptcy Court records for the Jacksonville division of the Middle District of Florida — serving Baker, Bradford, Citrus, Clay, Columbia, Duval, Flagler, Hamilton, Marion, Nassau, Putnam, St. Johns, Sumter, Suwannee, Union and Volusia counties — March bankruptcy filings in Jacksonville hit 1,186, ending a downward trend from 953 in September to 701 in January.

In April, filings dropped to 1,009.

Jacksonville foreclosure attorneys predict the spikes since March, not the drops since September, will be more common this year.

“April was the largest single month for bankruptcy filings in our firm since the eve of the bankruptcy law changes in October 2005,” said attorney Chip Parker of Parker & DuFresne , a law firm that handles foreclosures and bankruptcies.

Bankruptcy attorney Eugene Johnson of The Johnson Law Firm said both the decline and a spike in March are cyclical, and overall, bankruptcy filings in Jacksonville are going to go higher before they head down as a long-term trend. That’s due mainly to an increasing number of people forced into bankruptcy after exhausting their unemployment benefits, he said.

“If I had to guess, I would say bankruptcy filings will stay on an upward trend through the end of 2010,” he said. “That depends on unemployment and the home market.”

There were sweeping changes in the bankruptcy law in 2005, making liquidation of personal assets and debts more difficult to qualify for. However, over the last few years, there have been seasonal spikes in unemployment filings and recent highs are beginning to rival pre-2005 levels.

Johnson said it’s common to see more filings in the spring, because people who need to declare bankruptcy usually lack the $1,200 to $3,500 in attorney fees and use their tax returns to pay for it.

“You’re going to see a lot of filings in March, April and May,” he said.

For those who are out of work and have no savings to fall back on, using credit cards to get by creates its own unmanageable debt before long and the need for a fresh start can come at any time, Johnson said. Without a reliable source of income, unemployment can lead to bankruptcy if a person can’t find a job within a year, he said.

Lansing J. Roy, bankruptcy attorney and founder and president of his own law firm, said they receive eight to 14 new bankruptcy filings every day.

“A lot of it is real estate related,” Roy said, “and a lot of it is job-loss related.”

The resultant financial stress can be hard on married couples, he said.

“Some people who come in, I can take a look and say, ‘You want a bankruptcy and a divorce,’ and it’s just a question of what order,” he said.

People file for different types of bankruptcies depending on their financial condition. People unable to pay 25 percent of their credit debt with their disposable income may opt for Chapter 7 bankruptcy, which liquidates certain assets and wipes out debt. People who have too much disposable income to qualify for Chapter 7 can opt for Chapter 13, in which they pay a trustee who pays debts on a plan. People with more than $1 million in home mortgages and rental properties can’t qualify for Chapter 13, so many are opting for Chapter 11, a reorganization plan typically favored by companies that seek bankruptcy but want to stay in business, Johnson said.

Bankruptcies are a lagging indicator of the economy, he said, and won’t begin to wane until other indicators get better.

“Everything I read and see says the trend is going to head upward,” Johnson said. “It’s a convergence of adjustable rates in the housing market, dropping values and rising rates on credit cards.”

Roy, 70, said he had plans to retire, but put them on hold due to his firm’s caseload.

“I’ve never seen anything like this,” he said. “Nothing like it in 40 years. It’s a mess.”

kevin.turner@jacksonville.com,

The following article was featured on First Coast News on March 10, 2010.

Len Keise – Taren Reed

JACKSONVILLE, Fla. — If you find yourself living paycheck to paycheck, you aren’t alone. The number of people unable to pay their bills is growing. For some, the only way out they see is bankruptcy.

In his six years of practice, attorney Eugene Johnson with the Johnson Law Firm has never helped so many clients file for bankruptcy protection.

“This economy has hit just about everyone that I can see,” said Johnson.

Johnson has seen a varying degree of clients, including everyone from those with six-figure incomes to the unemployed.  “We see all folks from all walks of life,” said Johnson, “We have represented doctors, lawyers on down to your average blue collar midnight shift worker.”

Across the United States bankruptcy filings are steadily rising.  “From 2006 to the present, you’ve probably seen a jump of about 100 percent, meaning that in 2006 there was approximately 600,000 bankruptcies filed nationwide. Last year alone, it was about 1.2 million.” The U.S. Bankruptcy Court for the Middle District, which includes Jacksonville, is the third busiest bankruptcy court in the nation.

In 2008, there were 42,557 filings in the district. That jumped to 61,690 filings in 2009, resulting in a 45 percent increase.

“We expect even more this year,” said Johnson.

In Jacksonville specifically, there were 8,412 filings in 2008 compared to 11,144 filings in 2009. That’s an increase of 32 percent.  “If you need to file, you need to file. And the realities are such that most folks only have enough income coming in the door to pay necessary bills and living expenses,” said Johnson.
Johnson only expects more of that same reality and more clients coming through his door as the economy sluggishly rebounds.

“Last month there were 5,000 filings in the Middle District,” said Johnson.

It’s important to note that filing bankruptcy is a life-changing decision that should be made with lots of thought.

Clients also ask which type of filing is “better” for their credit score after bankruptcy. The truth is there are many factors that play into determining a credit score and the exact formula used to determine a credit score is probably only known by a select few (the following website appears to contain some good information on what factors are used to determine your credit score: http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx)

I usually advise clients not to be concerned about the effect of Chapter 7 versus a Chapter 13 on their credit scores. Indeed, a filing under Chapter 7 or Chapter 13 can stay on a credit report up to 10 years from the date of filing. That said, if I had to chose, I would say Chapter 7 is “better.”

Consider this, a typical Chapter 7 proceeding lasts approximately 4-5 months from the date of filing to the date of discharge. Once a Chapter 7 client receives a discharge, he/she can immediately begin to rebuild their credit. Nothing in the Bankruptcy Code prohibits you from immediately applying for credit after a discharge. If new credit is used responsibly, a client’s credit score should improve.

It’s also worth noting that client’s credit reports usually have months and sometimes years of derogatory marks and are filled with negative information. Most of this information is deleted after the client receives a discharge, so their score has nowhere to go but up. A higher credit score after bankruptcy may also be realized by reaffirming certain debts in a Chapter 7. If the debtor reaffirms a debt (continues to pay an otherwise dischargeable debt as previously agreed or on modified terms) such as a vehicle, the creditor will likely continue to report information relating to that debt to the credit bureaus. If paid as agreed, this should serve to improve a credit score.

Now, let’s examine Chapter 13. Chapter 13 payment plans last a minimum of 3 years (unless 100% of the debt can be paid in less time), and up to a maximum of 5 years. Chapter 13 clients are not permitted to incur new debt while making payments under their plan without first obtaining permission from the court. Thus, clients are not able to create new, positive remarks on a credit report or have old, derogatory remarks removed, until they receive a discharge. A Chapter 13 client does not receive a discharge until they successfully complete their plan or the court awards a hardship discharge prior to the completion of the plan (very rare). Thus, Chapter 7 affords the client opportunity to rebuild his/her credit sooner than the Chapter 13 client.

So, if you were to take two individuals, both with the same credit history, put one in a Chapter 7 and the other in a Chapter 13, which one do you think will have a better score after 5 years? Probably, the Chapter 7 client.

Click here to learn more about the program.

Click here to find out if you qualify for the program.

The language of HR 1106 can be found here: http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.1106:

Under current chapter 13 bankruptcy laws, homeowners have the ability to save their principal residence from foreclosure by proposing a plan to cure delinquent mortgage payments.  However, current law prohibits homeowners from proposing a plan that modifies the terms of their first mortgage (subordinate mortgages may be modified under certain circumstances).  In other words, homeowners may not reduce their regular monthly mortgage payments or convert an “adjustable-rate” mortgage to a “fixed-rate” mortgage.  The proposed legislation seeks to change that. 

If passed, eligible debtors may soon be able to propose major changes to their mortgage by reducing the outstanding balance to the fair market value of the home, converting an “adjustable-rate” to a “fixed-rate,” and/or lengthening the re-payment period. 

Monitor the progress of H.R. 200 here:

http://www.govtrack.us/congress/bill.xpd?bill=h111-200

Monitor the progress of S.61 here:

http://www.govtrack.us/congress/bill.xpd?bill=s111-61

To that end, we are finding that clients are unaware of their options when it comes to dealing with their mortgage company. For this reason, we want to provide prospective clients with a list of options and methods for avoiding foreclosure. It is important to note that if you have already been served with a foreclosure lawsuit, some of these options may no longer be available to you. If you have already been served with a foreclosure lawsuit, then you should immediately contact an attorney to learn what your options are and whether a Chapter 13 bankruptcy can save your home from foreclosure. Chapter 13 is a valuable tool that allows you catch up overdue mortgage payments, real estate taxes, and home owner’s association fees over time, typically 3 to 5 years. If however, you are not a party to a foreclosure lawsuit and have little or no other debt, then it may make sense for you to explore the following options with your mortgage company:

Repayment Plan/Forbearance – The most common method to cure a default is to enter a repayment plan. This will allow you to repay part of the past due payments, along with your regular payments. If you are unable to pay your mortgage due to a loss of income or increase in expenses due to circumstances outside your control (e.g., medical bills), then forbearance may make sense. Forbearance is where your mortgage company agrees to suspend payments or accept partial payments for a limited period of time until you are able to resume regular payments.

Reamoritization – If the mortgage company agrees to reamoritize your mortgage loan, the delinquency is added to the principal balance of your loan. This will bring your payments up to date. However, this increases your loan amount and your payments. The amount of the increase will not be as great if the length of the loan is also extended. Most loans are capable of being reamoritized.

Private Sale – Probably the most obvious of all choices is the private sale. If you cannot meet your mortgage obligation, a private sale may enable you to pay off the balance of the loan and receive any excess proceeds after all other lien holders and closing costs have been satisfied.

Short Sale – In essence, a short sale is where you sell your home for less than what you owe to the mortgage company and other lien holders. The mortgage company and any other lien holders must agree to accept less than full payoffs and to release their liens in order for the buyer to receive clear title. Because this process often requires the consent of many parties, it is a good idea to involve a real estate broker/agent that has experience and is familiar with short sales.

Deed in Lieu of Foreclosure – If you are unable to cure a default under any of the foregoing methods, then the mortgage company may consider a deed in lieu of foreclosure. Provided there are other liens on the property (e.g., second mortgage, judgment, homeowner’s association lien, etc.) you may be able to execute a deed transferring ownership of your home to the mortgage company.

It is worth noting that there may be tax consequences through a short sale, foreclosure, or deed in lieu of foreclosure. In these scenarios, the mortgage company rarely receives the full balance on the loan and the amount of the debt that is “forgiven” may be viewed as income for that tax year by the IRS.

For example, if you owed $200,000 on your home and you received an offer for $150,000 and your mortgage company accepted the offer (a short sale) then the IRS would view the $50,000 difference as income in that tax year. The result – you would owe taxes on $50,000. However, you may be able to avoid paying that tax by filing a form 982 with the IRS. Form 982 states: “[g]enerally, the amount by which you benefit from the discharge of indebtedness is included in your gross income. However, under certain circumstances described in section 108, you may exclude the amount of discharged indebtedness from your gross income”. One such “circumstance” is if you were insolvent prior to the triggering event. If you were insolvent, then you may be able to “exclude” the amount forgiven from being added to your gross income for that year. It would appear however, that the exclusion on only applies to your principal residence and not investment or rental property.

If you have questions about foreclosure, bankruptcy, or any other debt related matters, feel free to contact us by telephone at (904) 652-2400 or, by e-mail at info@johnsonlawpa.com.

Topping the list was the Eastern District of Michigan with 33,799 bankruptcy filings for the 12 months ending September 30, 2007. Rounding out the top six were:

• The Northern District of Georgia, with 30,768 filings;
• The Central District of California, with 29,106 filings;
• The Northern District of Ohio, with 26,417 filings;
• The Northern District of Illinois, with 26,807 filings; and
• The Middle District of Florida, with 23,027 filings.

Despite the rise in the number of filings, the number of court staff in the Middle District of Florida continues to decline. It is projected that the number of staff positions in 2008 will decrease from 134 to roughly 92. Judges in the Middle District carried an average load of 2,878 cases during the reporting period.