A “cash for keys” agreement, often referred to as a deed in lieu of instead of foreclosure, not only helps the bank save money, it also supports the distressed homeowner by helping to offset any expenses of relocation and can be used as a deposit for a rental property.
Why is a bank going to pay residents to leave?
Banks are not in the business of being landlords-that is, they would prefer to move a foreclosed home as soon as possible out of their hands, recovering as much of the loss from the loan as they can. This saves them money if they have to go through the full legal mortgage process, money that is not charged on the home loan, money for attorney’s fees, and missed revenue from the interest of the home loan. To foreclose on a home and go through the court process will cost the bank thousands of dollars. Moreover, some tenants intentionally destroy the property when faced with eviction. Therefore, the bank will be responsible for restoring the house in order to bring it in a marketable state.
How much are banks going to pay to get a homeowner to leave?
A bank will pay a variety of items to persuade a homeowner to vacate the property and leave it in good condition:
- Security deposit, and rent for the first and last month at the new residence
- Movers or a moving truck for hire
- Deposits to the new residence for services
- Temporary hotel or motel stay
Bear in mind that for all of these items, banks are not obligated to pay. A home loan with repayment terms is a business arrangement between the homeowner and the bank. When facing eviction, the home loan would not cover incentives to move out quickly. However, it is in the best interest of the bank to have foreclosed residents leave as soon as possible, hence the incentive.
Be courteous and completely comply with the terms of the agreement, as with all business dealings. Ask for the sum you really need-don’t try more than you need, or it could backfire. Request that the contract be put in writing, including the full sum, the date you are to vacate and stipulate that this is not a loan with the promise of redemption if you obtain a deed instead of a foreclosure offer.
Your local Housing and Urban Development (HUD) office will also be eligible to offer free counseling services. HUD has certified housing counselors who specialize in helping homeowners understand the process of foreclosure and assess their program eligibility. They may also be willing, taking care of your interests, to check any offer you obtain from the bank.
To be conscious of certain things.
Never accept from someone other than a representative of your lending bank a “cash for keys” deal. If you believe that this is a scam, check the identity of the person making the offer with the office of your bank, or ask your HUD counselor for assistance.
Leave the house “broom clean”-remove from the property all your possessions and furniture, as well as garbage and debris. Ensure that all fixtures remain in the building, even appliances that you don’t own. Landscaping and the premises, and the house clean, with floors swept, should be left intact. The bank must surrender all the keys and remote door openers. The bank will inspect and assess the home before you move out, so if you are not compliant with this component of the agreement, it could nullify the contract.
Usually, the foreclosure process takes about six months, meaning certain homeowners may have six months until they are finally excluded from the property in the foreclosed building. Although it is not desirable to vacate your house for a new residence in as little as a month’s time, the concept behind cash for keys offer is to compensate for the vacating tenant’s unforeseen relocation expenses. This helps the bank to easily arrange the house for resale.
Bear in mind that instead of a default, a Cash for Keys does not prevent an actual foreclosure from showing on your credit report; credit bureaus may also be told of the delinquency on your loan that triggered this circumstance. Consult a licensed credit counselor if you are concerned with how a “Deed in lieu of foreclosure” can impact your credit.