Many Orlando residents are considering “strategic default” and voluntary foreclosure to fix their “underwater home” problem. Earlier this week I reported on a survey by the National Association of Independent Landlords, showing that most non-corporate landlords are OK with renting to families and individuals who have lost their homes to foreclosure, if it was an isolated event and they showed an otherwise good track record of paying their bills on time. Now, another study confirms that creditors are now beginning to take into account the deepening mortgage foreclosure crisis when assessing the credit worthiness of borrowers. Credit monitor TransUnion reports that those who only default on mortgages are less likely to default later on new car loans or credit cards than are people who default on mortgages and at least one other debt at the same time. This was the result of a study, entitled “Life after Foreclosure,” on 129,000 homeowners followed over a 12 to 17 month period. The study found that credit scores for mortgage-only defaulters bounced back quicker, with credit scores rising a median 8 points 12 to 17 months after defaulting on a mortgage. The results of this study were similar to a study performed by credit monitor FICO, which last month reported that mortgage-only defaulters were savvy about credit, with better credit histories than other mortgage defaulters.
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Mortgage foreclosures in Orlando and the state of Florida are in the news again. The Orlando Sentinel reported this month that the Orlando metro area saw an 18 percent increase in forelclosure-related filings from March to April, ranking Orlando 36th nationally.
Many Orlando homeowners are experiencing the trauma of loosing their homes in foreclosure. I see this in my practice every week – there’s no doubt that toxic mortgages, job loss, and other circumstances that have created a foreclosure crisis in the Orlando housing market. Often with the help of an attorney who helps them defend the mortagage foreclosure, some homeowners are trying to stay in their homes as long as possible. But what happens when they are unable to work things out with my mortgage lender? Here’s some good news for you: A very large majority (82%) of independent landlords say that they would rent to an individual or family that lost a home in foreclosure, if it was part of recent bad luck, like the loss of a job. These were the results of a survey by the National Association of Independent Landlords, the county’s larges provider of services for small landlords. Landlords are clearly taking current economic conditions into account and giving resposible applicants an opportunity to find a new home. These landlords recognize that those who have owned homes in the past are responsible and have an interest in caring for their home. They are willing to see these individuals as better credit risks, as compared to those applicants who demonstrate a more lifelong pattern of finacial irresponsibility.
I have previously written in this blog about the pernicious impact of medical debt and how it has become a leading cause of personal bankruptcy for American citizens.
I have previously written about the effect of marriage and divorce on debts and the ability to discharge them in a chapter 7 bankruptcy. A recent case decided in the Middle District bankruptcy court in Orlando shows how the death of a spouse may affect the outcome of a bankruptcy proceeding. In the case of In re: Taylor, a 72 year old married man filed for chapter 7 bankruptcy without his wife. They were residents of Palm Coast, Florida. Six weeks after filing for bankruptcy, the wife of 52 years died. At the time of her death, the couple owned together approximately $34,000 in a bank account; $6,000.00 in a CD, and another $6,000 in household goods and furnishings. Mr. Taylor’s bankruptcy lawyer helped him claim all of these assets as exempt from the bankruptcy. Had the wife remained alive, the husband could have claimed an exemption for all of this property, which would have allowed him to keep all of it after the chapter 7 bankruptcy, without having to turn it over to the trustee for liquidation for his creditors. That is because the property was considered to be held as “tenancy by the entireties.” Tenancy by the entireties (called TBE for short) is a special form of legal title for property owned jointly by married people. Under Florida law, when only one spouse is liable on a debt, the creditor of that single spouse cannot seize property that is owned by the married couple as tenancy by the entireties. (However, seizure is permitted when the debt is joint, because both the husband and the wife owe the debt to the creditor). A married individual who files a chapter 7 bankruptcy in Orlando, (or any other court in Florida), may exempt from the bankruptcy any property that is owned in the form of tenancy by the entireties, provided that their spouses do not join them in the bankruptcy (this is usually done if most or all of the debt is in the name of the filing spouse).