Who wins in a cash-for-keys deal?

Real estate broker Richard Allen.


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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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.

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

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.

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.

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.

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.

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.

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?


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