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Question:
APR 30, 2012

Cash for Keys and Foreclosure

I do not understand how cash for keys works. Can you explain cash for keys for me?

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Bill's Answer: Bills.com Resident Expert

Cash for keys is a concept for homeowners whose home went into foreclosure or for people who are renters in a property that went into foreclosure. Cash for keys is voluntary, and there are no hard-and-fast rules mortgage servicers or land owners must follow. Each mortgage servicer is free to offer it (or not) on a state by state basis, and set their own qualification criteria.

What the Bank Gains from Cash for Keys

Cash for keys can also be called relocation assistance. Cash for keys is when a homeowner or tenant is offered money as an inducement to vacate the foreclosed property in a speedy manner and to leave the property broom clean and undamaged. The bank is eager to get the property back on the market as soon as possible. It is likely that there have been had no payments made on it for an extended time, so the bank is willing to pay a fee to expedite the process, to reduce its losses.

Sometimes, in foreclosed homes, the vacating party is so angry that he chooses to strip out appliances and fixtures, to stop maintaining the home, or to even actively trash the home. Cash for keys is designed to avoid this from happening. It involves a written agreement between the bank and the owner/tenant that specifies the amount that will be paid to the vacating party as well as the timeframe for vacating the property and the binding commitment for the vacating party to leave the property in excellent shape.

Usually, the bank hires a third party, such as a real estate agent, to work the cash for keys process. While the final decision of how much to pay the vacating party rests with the bank, the agent will be someone with whom the vacating party can try to negotiate, regarding the size of the cash for keys payment and when the property needs to be vacated. In general, the faster the property is vacated, the higher the cash for keys payment.

The Rights of the Tenant or Homeowner

It is very important for the homeowner/tenant to know his rights. Once a property is foreclosed, it belongs to the bank. A federal law, the Protecting Tenants at Foreclosure Act of 2009, requires that the tenant in a foreclosed property be given at least 90 days, before being forced to vacate. Under the new federal law, your lease is good after foreclosure. You are entitled to stay in your apartment for the full term of the lease. The only exception to this rule is if the new owner wants to live in your apartment, in which case you are still entitled to 90 days before you can be forced to move.

Eviction

Different states and localities have differing regulations for how long a person can remain in a property and it may require an eviction to force the resident to vacate. Eviction is not an immediate process, taking at least 90 days. Depending on how long a person legally can stay in a home, before being forced to vacate, that person may gain greater benefit by continuing to stay in the property, when compared to accepting a low-dollar cash for keys offer. The longer a person is legally allowed to remain in the property, the stronger his negotiating position and the more money he should be able to get in the cash for keys agreement. It makes good sense for a person in this situation to know how long the he is legally allowed to remain in the home, doing the necessary research with state and local housing rights authorities.

No one is required to accept the cash for keys offer. The homeowner/tenant should be treated respectfully by the bank’s agent. A person does not have to put up with threats or abuse. The nastier the agent becomes, the likelier the agent is trying to bully someone into a less than favorable deal.

It makes sense for the homeowner/tenant to calculate the costs of moving and relocating, with the goal of negotiating the cash for keys agreement that will cover these expenses. For renters, it is important to cover the topic of the security deposit in any negotiation, or the renters can find that no security deposit is received and there is little or no recourse to recover it. Most agreements require the renters to agree that all future claims are dropped, though some states require the new landlord to honor your security deposit.

Broom Clean

Cash for keys offers can range from $500 to $5,000. Before the money is disbursed to the homeowner/tenant, the agent will come to inspect the property, making sure that is thoroughly cleaned and the property is undamaged. The term that is often used is "broom clean." Broom clean means that the property should be emptied of all personal property, the floors have been swept, the appliances have been cleaned, and any changes that have been made, such as nails in the walls or painting a room, have been returned to their previous condition.

If negotiated properly and a person knows his rights, so he can best protect himself, cash for keys can be a win-win situation for both the bank and the resident.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

Comments (122)


Kent C.
Port Clinton, OH  |  April 30, 2012
How much approximatly does the real estate agent representing Fannie Mae make, when they make a K-F-C offer to someone that has forclosed.
Bills.com
May 01, 2012
Kent, there is no published fee structure for Cash for Keys. It is always a negotiaton. The agent makes whatever it negotiated with the property holder, but makes its money on the commission for selling the property. I don't know whether an agent gets any money at all related to negotiating the CFK. The agent gains by getting the person out of the property and having the property in good condition, so they can make the sale.
Vondale R.
Virginia Beach, VA  |  April 27, 2012
Regarding Cash for Keys; is this debt forgiveness, or will this possibly affect your credit in the same manner that a bankruptcy would? Due to loss of income I have been behind on my mortgage (2 pmts.), my account is now in default. Even though I have made Apr2012, and will make my May 2012 Pmt. I just dont have the extra money to catch up on back payments. Is it better to stay in your home up to 90 days if allowed, once the foreclosure process starts in order to have those funds available to you for relocation expenses? I live in Suffolk, Virginia I will have to find out where the state stands.
Bills.com
April 27, 2012
Cash for Keys is not an item that affects your credit. It is the missed payments and foreclosure that harm your credit.

Whether staying in the home for as long as possible is better than Cash for Keys depends on the terms you negotiate.

Separately, it may be the case that the lender could issue you a 1099 for the CfK money. You may want to clarify whether it will or won't, as part of your negotiation.
Aaron S.
Sarasota, FL  |  April 25, 2012
Cash for keys is nice, but its bittersweet. there going to make you call 10,000 different phone numbers, talk to 20,000 different people, bank, broker, real etstate agent etc....you never now who to contact and when. As a tenant, all i should be able to do it leave when they say leave and recive money. not fax in 10 different papers to 20 different people. they should just show up at my door, inspect the place, and give me my money. they want me out, they should do the paperwork, not the tenant!I have moving, work and school to worry about. not messing around with the banks and real estate and worry about faxing papers, and talking to brokers. Nobody seems to really know what the hell is going on and they expect me to leave as soon as possible without a move out date or anything!
Carey G.
McCordsville, IN  |  April 17, 2012
Do you approach the mortgage company BEFORE the sheriff sale about "cash for keys" or wait until after the sheriff sale and approach the new owners, which will probably be the bank?
Bills.com
April 17, 2012
Cash-for-keys is an idea, and there are no rules or laws everyone follows here. The mortgage company or the new owners may not offer a cash-for-keys program. Therefore, there is no harm in starting to ask the mortgage servicer that is handling the foreclosure now if it offers cash-for-keys.
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D C.
Cincinnati, OH  |  April 22, 2012
I been tracking this Fannie Mae house for over a year. The tenants were given a 12 month lease which ends May 31 2012. When if ever will this house come to market. Or will Fannie Mae let the property agent rent it out indefinately on a month to month.
Bills.com
April 23, 2012
There is no blanket rule to that applies to the question you ask. The owner, whether it is the bank or someone who buys it at auction, will determine what to do with the property. You could send a letter to the address in question, addressing it to the "Property Owner," expressing your interest in the property.
Jody B.
Laguna Hills, CA  |  April 03, 2012
My condo was sold at a auction on March 21, 2012 - I was renting it to two college students who are friends of mine at under the market value. I did this as a favor to the kids mom who at the time we were good friends. I just found out they received a letter from the new owner via a agent offering them $2500 to move out by a certain date. The letter was addressed to me and was left on the door of the condo. My question is there anyway I can get that money? Out of the goodness of my heart I rented it at under the market value and did not require a deposit for move in. I was never notified of this letter until the mother told me the kids were moving out. I tired to call the agent, but he is not c alling me back. Do I have any recourse? Thank You.
Bills.com
April 04, 2012
It is commendable that you were helping your friend's kids. Cash for keys is a voluntary program that is designed to get the tenants (renters or homeowners) out of the home quickly, in the case of a foreclosure and to ensure that the property is delivered in good condition. If you feel that your rights were infringed, then I recommend that you speak with a lawyer.
K R.
San Francisco, CA  |  March 28, 2012
My mom signed up for the cash for keys program- $2,000 to be out by 03/28- the home in now owned by Sallie Mae, and the deal was brokered with Century21 in Cameron Park, CA. She has been very ill- she had a stroke, so my fiance and I spent the weekend moving and cleaning the property. The house was broom swept and scrubbed. There were a few paint cans, which we left in the garage (thinking the people who moved in eventually would have the paint colors for the house. Well today, during the exchange the Century 21 rep said they would give my mother NOTHING because there are planters in the yard. Is this legal and okay? They can offer nothing of the $2,000 because of planters etc? The house is emptied and scrubbed clean. Someone please help! PS And oh, just to top it off, I called the rep over the weekend to let them know my mother had had a stroke so they could be aware of the medical condition. When they were dealing with my mom today the rep told her to her face, "Your personal/medical issues aren't my problem. For me this is about money." Lovely people.
Bills.com
March 28, 2012
If the only excuse the agent can offer for not performing on the promises the agent made in the contract was a couple planters in the yard, then you need to level the playing field. Hire a lawyer to write a letter to the agent explaining you are prepared to litigate the issue. If the agent is only in it for the money, he or she will see that defending a lawsuit will cost a great deal more than $2,000, and will see that fulfilling the promises made in the contract is cheaper than spending time in court.
David N.
Denton, TX  |  March 19, 2012
We are in a rental house that has been foreclosed on. We signed and returned a Relocation Assistance Agreement for $$ to be out by April 30th. Today i got a phone call telling me that the house had been sold, and the Relocation Assistance Agreement was void. Reading through our signed agreement, there are no clauses for anything about it being sold, or being voidable by sale. The only things it says about not paying us is if we arent out, or the conditions of moveout are not met. Can they void this agreement? should i seek Legal representation and try to hold them to the original agreement?
Bills.com
March 19, 2012
The desire for the former owner to void the contract he or she signed with you is wishful thinking, if, as you suggest, there is no escape clause in the contract. Unless, of course, the entire contract is void and you can continue to remain in the property until your lease expires.

Consult with a lawyer who has contract litigation experience in your state to learn your options if the owner does not fulfill the promises it made in the contract the two of you signed.
Dave E.
Palm Harbor, FL  |  March 12, 2012
I'm renting a room in a house that seemed to be heading to foreclosure. Owner also had a pending lawsuit against him for defaulting on a $150K home equity loan. Although there's no way to get a straight answer from owner, he is emptying house and all renters month-to-month leases were terminated. He's claiming that he is surrendering house to avoid lawsuit. A Realtor friend researched things, and said no foreclosure is in effect, probably 12 months away. A prospective new owner claims he has a closing date of 3/29, so perhaps a short sale has been in the works this whole time. Do I have an option to qualify for cash-for-keys or should I negotiate with new owner if his closing date sticks?
Bills.com
March 12, 2012
Reread the first paragraph in the original answer above — "Cash For Keys" is an idea and is not a law or program people qualify for. The law tenants need to understand is the Protecting Tenants at Foreclosure Act of 2009, which you can use as leverage in your negotiations with the new owner.
Tra' S.
Winter Haven, FL  |  March 08, 2012
I received a letter from the bank lawyers on 2/21 informing me that the home I am living(renting) in is about to be foreclosed, and the expect ownership will be transferred to the lender w/i the next 60-90 days. Shortly there after it will transfer ownership to HUD, and "require no one living in the properties for which it accepts ownership unless certain conditions are met." I can submit a request to continue to live in this property after HUD b/c owner by submitting a written request w/i 20 days. They have enclosed a "Request for Occupied Conveyance" to give HUD the info needed to make a decision. What does this mean and what if they denied my request? Should I try to contact the bank and see about a cash for keys deal, or do I need a lawyer? FYI: I am renting a house that my landlord has stopped paying on since Feb 2011, around the same time I started renting. I found out that he was claiming a homestead tax and wasn't suppose to be renting the property, and had to wait 7 days to get my lights on. Then after the I got served foreclose papers, and told him he stated that he was catching up the payments...long story short I signed another leased b/c he stated that he was saving his house and that never happen...
Bills.com
March 09, 2012
Do you want to remain a tenant in the property? If it is in a great location, well-kept, and a competitive price, then by all means complete the form and return it as request so that you can stay.
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Tra' S.
Winter Haven, FL  |  March 19, 2012
Nope its needs repair bad...the code enforcement came out...they are waiting on the foreclose process to fine the owner. If the banks end up with it then they will have to fix everything before they can sell the property...so do I need to try to negotiate a keys for cash offer from the bank to help me move?
Bills.com
March 20, 2012
Cash for keys is an idea. It is not a government program, nor a state or federal law. Cash for keys is designed to encourage tenants to exit a property and leave it in "broom clean" condition ready for the next tenant to take possession. No one is entitled to a cash for keys offer.

If your property is a disaster, then the only way you will see any offer is if you have a long-term lease on the property and the new owner needs you to vacate to begin repairs.
Caty B.
Doral, FL  |  March 02, 2012
the bank took possession of the house I'm renting, my current lease is until May 11/2012, but the bank offer us cash for keys and give us 15 days (03/15/12), now the homeowners association sent us an 'order expanding receiver's authority, I explain them that I'm leaving the house on the 15 and they say that I still need pay the rent. Do I have to, just for 10 days?
Bills.com
March 02, 2012
I do not understand why the home owner's association would want you to, or care, about your paying your rent. Your rent is something you should discuss with the bank that foreclosed on your property's former owner.

If you really mean your monthly HOA dues, then the HOA has a good argument that you should pay your HOA dues for the time that you reside in the property. Consult with a lawyer in your state if you believe the HOA, or anyone else, is attempting to take advantage of you.
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