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Who wins in a cash-for-keys deal?

Real estate broker Richard Allen.

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.

About the author

Eve Troeh is News Director at WWNO-FM in New Orleans, La., helping build the first public radio news department in the station’s 40-year history. She reported for the Marketplace Sustainability Desk from 2010 to 2013.
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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.

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.

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.

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).

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.

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.

does cash for keys apply to the lessee of a house in foreclosure

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.

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

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.

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