Do you live in a property that’s going through foreclosure? Ask your bank if a Cash for Keys agreement is possible in your case.
Cash for Keys is when a bank pays the homeowner of a foreclosed home to surrender the keys and vacate the property. The bank can evict the occupants, but that takes a lot of time and money. Cash for Keys offers a speedier solution.
Banks have used this method for years without publicizing it. It became well known during the 2007 subprime mortgage crisis. The increase in the number of foreclosures forced banks to use Cash for Keys agreements all the time.
Want to know if this is a good option for you? This article explains the details. If you’re facing foreclosure, keep reading.
What is a Cash for Keys Agreement?
Cash for Keys is a private agreement between the property owner and the occupant of the property. In a foreclosure, the bank is the property owner. The homeowner who defaulted on the mortgage is the occupant.
Some banks are willing to give a monetary incentive to homeowners who agree to help with the repossession. This is referred to as a Cash for Keys agreement. It’s also called a deed in lieu of foreclosure.
The homeowner agrees to vacate quickly, and signs over all legal interest in the property. The bank agrees to pay the foreclosed homeowner a certain amount of money.
Is Cash for Keys Legal?
The Cash for Keys agreement is legal in all 50 states. The idea is to settle the dispute outside of the court system. Most housing courts encourage resolution of issues this way.
Rent Stabilized or Rent-Controlled Units
Cash for Keys agreements are regulated in rent stabilized or rent-controlled units. For example, Los Angeles landlords must give formal notice to rent-controlled tenants. They must inform them of their legal rights and give them a 30-day grace period to back out of a Cash for Keys offer.
Why Do Banks Pay Occupants to Leave a Foreclosure?
Banks are in the lending business, not the real estate business. The foreclosure process is expensive and time-consuming. A formal eviction takes a long time. There are two reasons a bank uses the Cash for Keys option.
- Protect the asset. Foreclosed homeowners may do damage to the home they can no longer afford. Some leave pets behind. Others steal copper wiring, plumbing fixtures, and major appliances. Foreclosed homeowners have vandalized homes causing expensive repairs. Cash for Keys gives the homeowner money to move in exchange for not damaging the property.
- Remove the occupants. Almost every state has laws siding with the tenant during foreclosure. Once the foreclosure process is complete, the tenant must leave. Yet, the process can take 3 months or more. Lenders pay cash to help residents move out right away so they can take possession of the property. This allows the bank to get the property back on the market for resale in a shorter amount of time.
When a bank forecloses on a property, it must spend money to repair and maintain it. It loses money on the unpaid loan and its interest fees. Taking the homeowner to court for an eviction adds more expenses like attorney fees. The longer the foreclosure takes, the more money the bank loses.
Some tenants who face eviction damage the property out of misguided anger. That’s another expense for the bank. The house must be repaired in order to put it up for sale.
It’s a good solution for both parties. The bank avoids an expensive foreclosure proceeding and reclaims the property right away. The foreclosed owner gets enough cash to cover relocation expenses and a new rental deposit.
The agreement specifies a deadline for the occupants to vacate. They must promise not to vandalize the property. No appliances, fixtures or copper can be removed. No pets may be left behind. If they don’t follow the terms of the agreement it’s invalidated.
How Much Will a Bank Pay?
A bank wants the homeowner to leave the property in good condition when vacating it. The bank can motivate the homeowner in several ways.
The bank may offer to pay for:
- Movers or a rental truck
- First and last month’s rent, plus security deposit for a new rental
- Utility deposits for a rental residence
- Temporary accommodations in a motel or hotel
There is no required amount for Cash for Keys payments. Lenders generally offer 1 percent of the home’s value. For example, a $200,000 home would get $2,000 for the foreclosed owner to help with relocation.
Remember, the bank doesn’t have to pay for anything. The original mortgage transaction is for a home loan only. The reason a bank offers a Cash for Keys agreement is to get the foreclosed residents to leave as soon as possible so the bank can sell the property. That’s the reason for the incentive to get the foreclosed homeowner to move out fast.
How to Get a Cash for Keys Agreement
The bank won’t automatically offer Cash for Keys. The foreclosed owner usually suggests the possibility. The amount of cash is negotiable. Don’t expect more than you need to cover reasonable expenses related to moving out.
Always be polite and professional when dealing with the bank. Make sure you follow all terms of the agreement. When asking for cash, only ask for the amount of money you need.
The agreement is negotiable. You can propose a counter-offer. But be aware, if you ask for more money than you need to move the deal could go away. Another point of negotiation is the time. You could accept the money but ask for more time.
If the bank gives you an offer on a deed in lieu of foreclosure, ask for it to be in writing. The agreement should state the full amount, the date you must vacate, and note that it isn’t a loan that must be repaid.
There are times when a bank will pay a bonus to occupants willing to move out immediately. It all depends on the bank and the occupants. The bank doesn’t have to give anyone cash for keys.
Ask if there are free counseling services available from the local Housing and Urban Development (HUD) office. HUD can help you understand the foreclosure process. The counselors can determine your eligibility. They can look out for your interests by reviewing the offer you receive from a bank.
Don’t accept a Cash for Keys offer from anyone other than the lender bank. Always verify the identity of anyone representing the bank. You can ask a HUD counselor to help if you think it’s a scam.
Pay Attention to Details
When you vacate the property remove all your possessions. That means furniture, clothing, electronics, etc. Remove trash and debris from the property. Do not leave a pile of garbage of any kind. Do not leave any pets behind.
Don’t remove any fixtures or appliances that you don’t own. They should remain in the house. The house and landscaping should be intact when you vacate. The house should be clean.
Give all the house keys and remote door openers to the bank. Before you leave, the bank will inspect and appraise the house. If you don’t follow your part of the agreement they can cancel your deal.
If the bank is in a hurry to prepare the home for sale, you may have less than a month to move. The Cash for Keys program helps offset the vacating tenant’s relocation costs.
In lieu of foreclosure agreements don’t remove a foreclosure from your credit report. Not paying your mortgage loan caused the situation. It may still get reported to credit bureaus.
If you receive a Cash for Keys offer from your lender, get professional advice. Ask a professional credit counselor it affects your credit.
Call Bigger Equity Before You’re In Foreclosure
If you’re at risk of foreclosure, but not there yet, contact the home buying pros at Bigger Equity. No homeowner plans on being delinquent on a mortgage. We can help. We can get you foreclosure help.
We’ll give you a full, no-obligation, no-hassle, detailed review of your situation. We’ll explain everything in easy to understand details and tell you what solutions can work for you. Please feel free to contact us anytime.
AsapCashHomeBuyers.com pays cash for homes in “as is” condition. We buy houses nationwide. We cover most closing costs. We’re local real estate investors who help homeowners sell their houses fast, and at a fair price for cash.