Is Florida the Sunset State?

(2 of 3)

Of course, he got stucco. Now that South Florida has tied Las Vegas as the nation's fastest-tanking real estate market, Puig is bankrupt, with $80 million in debts. His mansion was liquidated for $11.4 million, and his yacht went back to the bank. At Puig's bankruptcy auction, bidders competed for a necklace studded with 226 diamonds, a Sopranos pinball machine, a 1965 Ferrari, nine designer bikes and other bubble baubles. The billiard table went for $25,000. "It's amazing how fast it all came crashing down," says Puig's criminal defense attorney, Joel Hirschhorn.

Related

Photos

Paradise Lost?

Photos

America At Home

Video

Facing Foreclosure in Tampa

Stories

• Florida's Blackout: A Warning Sign?

In the Paradise Lost days, Hirschhorn worked the white-powder bar, representing Medellín cartel leaders and other cocaine cowboys. Then he wore a pinkie ring with a two-carat diamond; now he wears Brooks Brothers and defends fraud cases. "It's where the action is," he explains with a grin. An epidemic of inflated appraisals, exaggerated incomes, straw buyers — and the lax regulation to enable it all — has made Florida tops in mortgage fraud, according to the Mortgage Asset Research Institute; in a recent Palm Beach County case, a grocery cashier's salary was listed as $344,000 a year. And Paul Singerman, bankruptcy counsel for Puig's companies, is even busier. His firm represents the Florida home builders Tousa Inc. and Levitt and Sons, which happen to be the nation's two largest bankrupt home builders, along with droves of failing contractors, landscapers and architects. "I got two calls from window distributors this week," Singerman told me. "A tile guy called this morning."

Keep the cell phone on, Paul. In some Miami high-rises, the foreclosure rate is as high as 1 in 4, and owners who still own are getting nailed with huge condo fees to make up for the lost revenue. Florida banks repossessed 620% more property last year than in 2006, and they're starting to unload nonperforming real estate loans for as low as 30¢ on the dollar. Miami topped a recent list of America's worst housing markets, just ahead of Orlando, with Tampa fourth. From 20% to 40% of the speculators who waited on lines to buy preconstruction condos during the boom are expected to walk away from those investments before closing; many are turning to a new cottage industry of get-your-deposit-back lawyers. "The ambulance chasers are everywhere," says developer Jorge Pérez, the so-called Trump of the Tropics, whose Related Group faces more than 100 lawsuits by remorseful buyers. "We've gone from euphoria to panic in a year."

And we haven't hit bottom. The glutted Miami market already has a five-year inventory, but Peter Zalewski of Condo Vultures says 22,000 more condos are still under construction downtown, which will double the supply. "Just wait. We haven't even started to feel what we're going to feel," he says.

That's also true in Florida's exurban boomtowns, communities like Homestead, Port St. Lucie and Kissimmee, that subprime borrowers flocked to for cheaper land and better deals. Now their homes are going back to the bank, and their neighborhoods are dotted with unmowed lawns and mosquito-infested pools. "Those lower-priced options are the places that are going to hurt for a long time," says Wayne Archer, head of the University of Florida's real estate program.

The problem is, even those lower-priced options aren't cheap. Florida's prices remain higher than the national average — especially when you count sky-high property taxes and insurance premiums that can be as burdensome as mortgage payments — while its wages are lower. Fitch Ratings warned that when a big hurricane hits, Florida's insurance market "could effectively collapse." That won't jump-start a recovery.

Water, Water, Everywhere
Nobody used to worry about the Big One hitting Florida, because it was a waterlogged wilderness. "It is a land of swamps, of quagmires, of frogs and alligators and mosquitoes!" a Congressman scoffed. "A man, sir, would not immigrate into Florida — no, not from hell itself!" In 1880, Florida ranked 34th of 42 states and territories in population, and the census found only 257 residents in most of South Florida. (See pictures of the world's water crisis.)

Florida's leaders believed that if they could just drain the swamp, they could turn a peninsular wasteland into a recreational, agricultural and residential paradise. They failed catastrophically. In 1928, a hurricane blasted Lake Okeechobee, killing some 2,000 pioneers that their promises had drawn to the Everglades.

But U.S. Army engineers eventually made the dream come true by imprisoning Lake O behind a giant dike, subduing the Everglades with 2,000 miles of levees and canals, seizing control of nearly every raindrop that fell in southern Florida. Their all-out war on natural water flow made the bottom half of the state safe for an unrestrained building frenzy that began after World War II and basically continued until Juan Puig bought his billiard table. Florida now has 18 million residents, most of them south of Orlando. Such progress had a price. Half the Everglades is gone. The rest is polluted, disconnected and infested by invasive species ranging from fast-growing ferns to pythons.

And South Florida is having an ecological and hydrological meltdown, the legacy of a century of plumbing and dredging and growing without much thinking. The Everglades ecosystem now hosts 69 threatened or endangered species, and its rookeries and fisheries have crashed. Massive algal blooms are turning Florida Bay into pea soup. The region's reefs have lost up to 95% of their elkhorn coral; persistent red tides have made it tough for sunbathers to breathe at the beach.

Now the rainiest swath of the country is running dry, facing a specter of structural droughts. And the dike around Lake O. is leaking so badly that water managers routinely dump billions of precious gallons out of the lake to avoid a 1928-style calamity, ravaging estuaries and draining the region's water supply. This spring the lake fell so low that 40,000 acres of its exposed bottom burned out of control, along with 40,000 acres of the perennially parched Everglades National Park.

See more about the Everglades.

See TIME's Pictures of the Week.