Who wins in a cash-for-keys deal?
Some banks are paying homeowners to voluntarily leave their foreclosed homes. The new method is cheaper than an eviction, but real estate broker Richard Allen says neither side comes out on top. Eve Troeh reports.
Real estate broker Richard Allen. (Courtesy of Richard Allen)
More on Investing, Housing - Real Estate
TEXT OF STORY
TESS VIGELAND: As homes continue to go into foreclosure, banks continue to deal with messy, expensive evictions. Many have found it cheaper and easier to offer occupants money to leave home quick and clean. It's called Cash for Keys. Marketplace's Eve Troeh reports.
Eve Troeh: Real estate broker Richard Allen used to sell homes in Canyon Country, Calif., just north of Los Angeles. Then the foreclosure tidalwave hit. Now he works for the other side.
Richard Allen: My clients are banks. They're selling the homes after they take them back through foreclosure.
The banks pay Richard to clear out the former owners. Evictions can cost banks thousands in legal fees and clean up. So many have turned to a cheaper alternative. It's called "cash for keys," and it's just what it sounds like. Former owners agree to leave by a certain date, and the bank gives them some money for "good behavior."
Today Richard's meeting a young man named Hector for the first time.
Allen: Hector? Nice to meet you.
And probably the last. Richard's here to get the keys to Hector's Condo.
Hector: I mean, everything works. Heat works.
Allen: Did you guys have any problems with cockroaches or anything?
Hector: No.
About five minutes later...
Hector: That's the mail key and then the house keys.
Allen: OK, then I've got your check.
The check from the bank is made out to Hector for $2,000. He's going to live with friends in L.A. He seems OK about all this.
Hector: I mean the only way to think about it is I get a fresh start again.
Hector's 25 -- bought the condo four years ago with a so-called balloon mortgage. After two years, his payments went up by $500 a month. He couldn't afford the increase, even with roommates. The bank foreclosed, and assigned Richard Allen to deal with Hector and the property.
Richard laid out the options: eviction or cash for keys. Hector took the cash.
Hector: If I would have said no, we probably would have stayed here, what, another month?
Then, Richard worked out how much he'd get. It's usually about one percent of what the bank thinks the home's new sale price will be.
Dan Sinclair lives in Patterson, Calif. He was on this show about a year ago. He'd stopped paying his mortgage -- couldn't afford it. But was still living in his house with his wife and three kids. When foreclosure began, Fannie Mae offered the family $2,500 if they were out in 30 days and left the place clean. Sinclair says the offer calmed him down.
Dan Sinclair: You know it's not your property anynmore and you feel like you want to leave them with a pile of dung, kind of like what they're handing you, so to speak. And so that little bit of incentive removes that temptation to do something you know you shouldn't do anyway.
Dan Sinclair thinks about the concrete patio he put in, and the surround sound speakers still in the walls -- investments left behind. The family owed about $500,000 on the house. It sold at auction back to Fannie Mae for $180,000. Now the Sinclairs live in an apartment about a quarter mile away.
Sinclair: We drive by our old house all the time. And we miss it.
The house is sitting there, empty. No buyers.
On its face "cash for keys" is a game where everyone wins. The bank gets a clean, empty property. The former owners get money to move on. But dig a little deeper, and...
Allen: Everybody loses.
That's Richard Allen again, the real estate broker in Canyon Country. He says: look at Hector's case -- the condo will be on the market in about a month. And it'll be priced to move.
Allen: It's gonna be sold for significantly less than what he bought it for.
Troeh: Would it sell for something that Hector could have even afforded at some point?
Allen: I would believe so.
But Hector's credit is shot. He can't buy anything anytime soon. And Dan Sinclair's old house is now a bargain, but his credit's ruined, too. Meantime the banks aren't making any money while the properties sit vacant.
Zoe Cronin is a lawyer over on the East Coast with Greater Boston Legal Services. She says displacing people and leaving empty properties doesn't make social or economic sense.
Zoe Cronin: I think the banks believe that they can only market the property vacant. But you have to take a closer look at that. Is that really a model that's a 20th century model and doesn't apply to the current sitaution.
She says owners in foreclosure may not be able to afford their mortgage, but most of them can pay something less. Her group is working with nonprofits that could buy properties from banks, and keep former owners in their homes as tenants.
In Los Angeles I'm Eve Troeh, for Marketplace Money.
Comments
Comment | Refresh
From TEMECULA, CA, 08/30/2010
Has any one got information about cash for keys in California? who qualifies for this program...advice please .... Thank you....
From Atlanta, GA, 08/19/2010
VERY frustrated with the pprevious owners renting back their foreclosed home! It sounds great for all parties until ... (my situation) I put an offer in on a house that is for sale- offer gets accepted- freddie mac has allowed the previous owners of the foreclosed home to rent it back until sold... no problem- UNTIL the now tenants refuse to move, decline the cash for keys and get to stay in the home until the end of the lease... meaning I will have wait until the end of their lease to close and then serve them with a 90 day notice to vacate in hopes that they dont trash the place in the meantime and in hopes that they actually vacate in 90 days, because if not then I will have to go throught the eviction process to get them out!!! How is this fair to the buyer.. What are my rights in buying this home that IS on the market to be sold!!!????
From aurora, CO, 08/11/2010
Has any one got information about cash for keys in colorado?
From stone mountain, GA, 07/18/2010
I would like to know what resources are available to receive help with "cash for keys" in the state of Georgia. I went to 2 banks and they said they never heard of this program. My landlord has told me that the property I live in will be going into foreclosure soon. I would like to get assistance with the moving expenses. I gave him a 30 dy notice last week.
From Avondale, AZ, 06/22/2010
the house i rent went into foreclosure and is now owned by fannie mae. fannie mae associates tried to gt us out of the house by threats of eviction, cash for keys, and trying to scare me into just moving thinking that i didnt know my rights or the az law. even when i was quoting law and rights they tried to make me think i didnt know what i was talking about. in the end or is it, fannie mae assigned a property management to the home. my 5 children my husband and myself have been without air conditionion for 5 days now the temp in the home has been at 95-98 degrress every one of these days. today is supposed to be 107 degrees and tomorrow 111 degrees. i am on housing and housing and managers have yet to do the necessary paperwork to gt paymets started for rent . the managers have been rude and disrespectful to me as well as to housing.i have spoken to three people in the company, one was the receptionist, the only proffessional one wh seemed to be employed there. my housing worker spoke to 5 people in that office who were all rude and non proffessional. they are refusing to fix air system until they recieve paperwork and rent payment. that may take a while. and in the meantime my family and i are burning up. what can be done to get this fixed? i called fannie mae and they didnt have record of owning the property only of a loan out for the home.
From conyers, GA, 05/04/2010
Has anyone heard of someone having to pay back the money they received from cash for keys? I ask because i have heard of people not getting paid after the landlord works out a deal to stop the foreclosure. So I am curious as to if anyone has been paid and had to pay the money back. I am in the process of doing a cash for keys myself.
From orlando, FL, 03/28/2010
Frist, if the holder of the mortgage offers you a keys for cash deal (and you take it) are you officially free and clear of your mortgage?
Second, if you don't take the keys for cash option and they start eviction proceedings, arent there numerous ways to keep postponing the eviction (responding each time notice is given and then, as a last resort, file for bankruptcy - which also stops the process)? I just need to postpone the process until May 31st. Plus, if you take this route, you don't have to leave the house in 'broomswept' condition. ( And,Isn't this what the keys for cash program is hoping to prevent?) If so, it would seem the homeower should have the upper hand in negioating when they will move and how much they are willing to take in order to avoid eviction (a huge expense for the mortgage owner).
From fresno, CA, 03/18/2010
im a guy who had no clue how to buy a house, i was told i made enough, got a loan that i had no idea what it meant and made enough money to afford it, as time went on i notice that ive paid 40k and only seen 3k off my mortgage. so, i left the military (Marines at the time), and started school, gi bill, disabled veteran payements, and part time gigs i was getting here and there, all non taxable. i could have paid my morgage if they would have worked with me. i let a "friend" move into my place to help with some of the costs, got my notice of default and decided not to charge him any rent. i moved out got a 1 bdrm in the ghetto for me and my son and now this guy is gonna get cash for keys and tells me that if i take the stuff i put in my house he wont get his money... unreal. im the one who lost 40k. i dont even want the money. no one single penny. but for the banks just to give it to some "squatter" is a total waist of Obama bailout. If I could run the show, believe me, there would be a 1/4 of the empty houses on the market as there is right now.
From dublin, CA, 03/13/2010
We had a notice to contact our lender within 30 days which we did at about 26 days as my wife had major surgery the day we received the notice by email and did not find it until 26 days. We began negitiations but the lady we were working with went on vacation and turned it over to a supervisor who threatened to send me to jail while I was giving her information the she turned our home over to foreclosure.
We have lived her for 12 years and never missed a payment or were late and were put into an interest only loan when New Century Mortgage went belly up and turned our loan to Carrington Mortgage. We aid nearly $200K in interest only. Now thy give us until 4-1-10 to leave with a $1300 cash for keys offer. We have a $4500 HVAC system recently installed (1 1/2 years ago) and a new water heater that far exceed this offer. This offer is totally unaceptable and I will be taking my new utilities with me since I am still making payments on them!
When will the Government step up and stop the banks from killing homeowners and ruining the housing market for their own profit? Wake up! Vote out all the representatives who are not helping the people. Do not let the country become run by corporations.
From eastlake, OH, 03/11/2010
does cash for keys apply to the lessee of a house in foreclosure
From Cumming, GA, 01/12/2010
I bought house in 2006 with 2 mortgages from Freddie Mac thru Suntrust bank. I divorced in 2007 and it was hard to meet all financial obligations. I used credit cards as second income to pay utilities, gas, food, car repair, and other daily needs until exausted their limits. In April,2009 I put house for short sale for 170,000 vs.220,000 purchase price. Got offer in a week. After 4 month waiting my first buyer dropped, we reduced price and got second offer. The third buyer took off just before Christmas. Now I don't have any buyers, foreclosure already scheduled. I still didn't get any response from Freddie. I couldn't refinance because mortgage upside down, couldn't modify my loan because gross income more then 31%. My option was short sale. Freddie got money from the goverment and have no interest in sale of property. Short sale is a myth if you have loan from Fanny May or Frieddy Mac.
12/31/2009
What most people do not realize is that the house was all paid off at closing by the promissory note that you signed. That was turned into a cash deposit at the bank and that along with all of the other es crowed funds - they paid everything at closing - and then had your note sold again at the same time so the bank was paid from the sale of your note and never risked any funds to pay off the seller or other mortgage bank - it was all generated by your signature on the note. But you also signed another document called the mortgage deed of turst that obligated you to pay or be foreclosed upon - and since you signed it and you are the creator and grnator of that trust - the trustee is just following your instructions when they foreclose. You need to learn what the remedy is - so you can be free and clear form the mortgage. https://marrs.infusionsoft.com/go/LFCSTANDARD/Steverge
From Surprise, AZ, 12/28/2009
What a sad, sad mess.
I am researching this "cash for keys" program because it will be the only way we will recover any of the money we invested into our newly foreclosed house.
Our story in a nutshell: We bought our house in November, 2007 for $201,000 with a 30-year fixed FHA loan. We had no problems paying the $1400 mortgage payments through the first year. Then in January of 2009 my husband lost his job. He was unemployed for over 6 months. He received unemployment benefits, which were $240 a week...less than half of his former income. We knew we were in trouble early on, and began working with Countrywide to modify our loan. We weren't asking for the priciple to be lowered, even though by then we were upside-down almost $100K due to the housing crash. All we wanted was for the interest to be lowered so that the payments could be affordable - we were asking for the payments to be modified from $1400 a month to $1000. Countrywide then got bought out by Bank of America and our file reverted to them.
Throughout the past 6 months we were told over and over not to worry, our file was "still in review" and even though we got served foreclosure papers in September with an auction date of October 10, we were told to relax, it's just a formality. We were told in October that since our file was still in review, the auction date would be postponed to November 10, which it was. Same story in November, and again in December. We felt confident that someone at BOA was working on our case and a resolution would be reached soon.
Then on December 18 my husband calls BOA for an update, and is informed that no one filed the postponement, so the house rolled to foreclosure! There was absolutely nothing we could do, according to the umpteen different people we talked to to try to stop this. On December 21 we got served with eviction papers stating we had to be out in 5 days...the day after Christmas! (We later found out the notice was not enforceable...but why scare people like that???)
Now we are looking to rent a home for the same amount of money we were trying to get our loan renegotiated to. Our credit will be shot, we are losing our dream home and all the money we invested into painting, landscaping, installing chair-rails and wainscoting, etc.
We were told that we did not qualify for Obama's anti-foreclosure programs since we had an FHA loan to begin with. BOA told us that the program was only to help people get out of ARM loans and into an FHA loan. So basically, since we decided not to get one of the wonderful-sounding, gimmicky ARM loans and instead chose to go with a safe, stable FHA loan...there's no help for us.
The worst part is - we were more than willing to keep our $201K mortgage, we just needed the monthly payment lowered. Now we are being kicked out and the house will be sold for half of what we were willing to pay for it.
Thanks, Bank of America! As an honest taxpayer and loyal American, I'm so relieved to see that the bailout money you received from President Obama is doing good for the common man, as intended. Right.
From miami, FL, 10/26/2009
It's sad , injustice all over, and it's a shame , that in the united states , trillions of dollars are wasted in stupid wars and wastefull programs and , can not provide the people a fair price house to live in.
how the government and the bankers are distroying the american dream in millions of people , creating a social-economical crises that has consequences
that includes , separations of families , even the death of entire families , and where are the human rights? capitalism is full of cinical , unethical and inmoral elements in it. we need another revolution , to protect the people not the bankers.
From palm, FL, 10/26/2009
i work for a forclosure buiness we also do evictions an when we go to ppls houses an they have no clue there gonna be kicked out of there houses is very sad but sometimes its best for cash for keys because people leave there houses a mess an make great damage to the property making are jobs harder the sad thing is the more forclosures the more money are boss makes
From houston, TX, 10/07/2009
I have been offered the "cash for keys" in the amount of $500.00 with 45 days to vacate. Rejected. I have $30K - 40K equity in my home. I refuse to let it be stolen through an illegal process.
Recently, the mortgage company reached out to me in an effort and meeting with the loan holder, word is they will be calling me today to offer an equity pay out. My eviction hearing is October 12, 2009. I will keep you updated, and I will continue for fairness and justice in the entire process.
From Phoenix, AZ, 05/29/2009
My house has been forclosed. In the Cash for Keys I have been offered $3000 if I am out in 15 days. Right now I need that $3000 so I will be out in time to collect it.
From Logan, UT, 05/27/2009
You don't get it. Banks win either way. You must not forget the other side of their balance sheet!!! Losses written off are turned into gains through many routes. Banks are rolling in cash and profits, they need losses to hide the huge profits they are taking in. Home owners that get into trouble ain't got a chance. There needs to be a complete paradigm shift in the western banking world. It simply does not make sense that the people making the most in the home market are the bankers, and they offer the least. Would you put up with paying your contractor 3-4 times over what he charged you? Would you pay for your appliances 3-4 times over? Why do you pay the bank 3-4 times over for doing nothing more than moving digits from one account to the other? Screwed up.
From sacramento, CA, 04/24/2009
The Secondary Mortgage Market, MERS, and Price Fixing
http://www.youtube.com/watch?v=zTVo2RuiDF8
From Ann Arbor, MI, 04/19/2009
The phrase "cash for keys" had a special, nauseating remebrance for me. That was the phrase and offer I heard more than once from the tax lien purchasers who drove me from my home even though I could have raised a fair market sum to re-purchase it. See SupportBeal,com.
From Tracy, CA, 04/13/2009
I am friends with Dan Sinclair and I am in the same exact position. I bought my house at the top of the market for $610,000, I had put 20% down when I bought it and when my payment doubled the bank didn't want to negotiate at all. The house was sold in foreclosure in December for $210,000 and is now up for sale again for $245,000. I filed for Bankruptcy and now rent a house in the area. Downey Savings was my lender and as far as I am aware they are now belly up. If they had made more of an effort to work with home owners they would probably still be a viable company. I hope these banks are getting a clue that when they help people instead of punitively punishing them, they not only help the homeowners and the neighborhoods but they help themselves stay in business and they would more than likely still be making a profit. I know that my view is shared by others and is a very simplistic view but it is clear that the banks did not even consider helping people stay in their homes as an option...and now they are begging the government to bail them out or are no longer in business. It's time for these banks to wake up and get creative in order to stop the hemorrhaging of their balance sheets.
From CA, 04/11/2009
This story raises the right issue -- isn't it ridiculous that the banks are throwing people out of their homes so they can sell them for pennies on the dollar? Instead of nonprofits buying them up for little or nothing andturning people into renters, why don't the banks write down the mortgages to a realistic figure and keep people in them? That's a win-win. You bet the bank incurred lots of costs foreclosing on people who lived in the house for a year witout making payments and then paid them again to leave, only to get $180,000 for it. If tey'd written the mortgage down to $200K, they'd have gotten a paying customer, avoided all the costs of foreclosure and helped keep a neighborhood stable. Is ANYONE listening? When will someone get the banks/investor to own up to why tey are pursuing this blatantly money-losing strategy?
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.