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In a NutshellMortgage lenders and rental property owners may be willing to pay owners or tenants to ensure a smooth transition and timely move-out. For both lenders and landlords these agreements are often cheaper and quicker than the alternative: A costly eviction proceeding.
A ‘cash for keys’ agreement might be the best option for homeowners facing mortgage foreclosure or tenants behind in rent. Mortgage lenders and rental property owners may be willing to pay owners or tenants to ensure a smooth transition and timely move-out. For both lenders and landlords these agreements are often cheaper and quicker than the alternative: A costly eviction proceeding.
Depending on the details, a cash for keys agreement may be the best option for the homeowner or tenant too. Whether your home has been foreclosed or your landlord is seeking new tenants, they’re often willing to pay to avoid the alternatives. Evictions are costly and drag on. So lenders and landlords sometimes pay cash to regain possession of their property.
Cash for Keys agreements are buyouts. After a bank has foreclosed on a property and wants the residents gone, they might offer to buy them out. Landlords can use the same type of agreement to entice bad tenants to move. In both examples the owner is essentially paying a sum of money for them to leave. Depending on the details and local laws, it may be significantly more efficient than pursuing time-consuming and expensive legal proceedings to evict the person from the home.
These agreements are legal in all 50 states. They should be made in writing, with clear terms and signed by both parties. Any agreement should definitively state the payment amount and the date the resident needs to move out by. An agreement might include other terms, such as requiring the property to be kept in good condition. A former homeowner or tenant can then rely on the written agreement to provide clarity, and some financial assistance.
Depending on the circumstances this agreement might be in the best interest of a homeowner facing foreclosure or eviction. Each party involved may have something to gain from a cash for keys agreement:
A cash for keys agreement will provide specific details about moving out of the property, in exchange for a negotiated payment. The parties agree on the date for transferring possession and assurances as to the condition of the property. A resident will be required to remove all their possessions and trash, leaving the property in good condition. This is often referred to as 'broom clean'. Owners taking advantage of a cash for keys arrangement after a foreclosure are also typically required to waive any claim they might have on the property or any ‘right of redemption’ at the end of foreclosure.
If a homeowner has lost ownership of their property through foreclosure they might ‘redeem’ the property by paying the delinquent amount and retaking ownership. They may also have a right to remain in the property for up to 6 months, depending on state and local eviction laws. But with a cash for keys agreement you're choosing to walk away from the property and depending on your circumstances it might be the right step. It also won't hurt your credit, unlike an eviction.
Cash for keys agreements may be negotiated or standard offer terms provided by institutional lenders. Availability and terms will vary but you should contact your lender to discuss if you are burdened by your mortgage or rent and unable to make payments. Remember that both tenants and homeowners have many rights and protections (including some coronavirus specific protections) that should be fully considered before signing any agreement to walk away from your home.
If you’re going through the foreclosure process or a formal eviction, you may have already received a foreclosure or eviction notice. This presents an opportunity to enter into a cash for keys agreement. Some banks and mortgage lenders may offer cash for keys by default. Their availability and terms may change over time. But even if your lender or landlord is not yet offering cash, you can initiate those discussions.
Start a clear discussion about the benefits and details of any agreement. Showing that you are willing to cooperate will be welcome and helpful during negotiation. Remember that a lender or owner is most concerned with the long-term value of their property. They want the property to remain in good, clean condition and providing them such assurances may help solidify the deal.
Any cash for keys agreement should be made in writing, to provide clarity and options if they don’t pay. Some states may also require the lender or owner to provide information about alternatives and the eviction process.
It’s important to understand who you’re negotiating with. Both tenants and homeowners should confirm that they are entering into an agreement with the proper authority. A tenant facing eviction should look to their landlord or property management company, depending on the terms of the lease agreement. A homeowner facing foreclosure should work with their lender, unless their property has been foreclosed already. If it has, a bank (REO property) or real estate investor may now be the owner. It’s important to ensure you are negotiating with the property person or entity.
Though legal, these agreements are not very well regulated. However, some local or state laws may apply. For example, in California only licensed real estate brokers can solicit for a cash for keys agreement. Some municipalities also require the lender or owner to provide information about alternatives and resources.
Also, it’s important to remember to explore all of your options before signing any agreement. Under California's Homeowner's Bill of Rights, lenders are required to contact owners to discuss alternatives and then wait thirty days before initiating foreclosure proceedings. They’re also required to accept and consider loan modification applications.
Because your state may have similar options, consider all of them before agreeing to a cash for keys agreement, especially if you’re still the property owner. For homeowners, trying to quickly sell the property might still be the best option. If your property is auctioned and sells for more than the costs and debts you may also be entitled to receive the proceeds.
For those facing eviction, state and local laws may also provide protections. Nationally, the “Protecting Tenants at Foreclosure Act” (Title 7, US Code Section 701) permits any tenant who leases a building that is foreclosed to remain at the foreclosed property through their lease term - unless the buyer plans to occupy the home as their primary residence. In that case, the tenant has 90 days to vacate.
The details may vary but a cash for keys deal may range from $500 to $5,000, depending on the property, location, and outstanding payments. Negotiate and don't be afraid to ask for more.
Your lender or landlord is focused on protecting their property and moving quickly. Your leverage is connected to your cooperation and you'll have a stronger position before they advance through an eviction or foreclosure.
Delaying foreclosure may buy time to make up delinquent payments, but a lender’s offer is likely to decrease the more the process drags on. Researching local court costs, legal fees or other potential expenses may also aid your negotiation.
By signing a cash for keys agreement the homeowner or tenant is abandoning any legal rights they might have to remain in the property. So, it’s important to make sure the agreement relieves any obligations to pay overdue rent or missed mortgage payments.
Be specific about all the details. Spell out the payout amount in writing, including the amount of money you’ll receive and the payment method (cash, check, wire transfer, etc). You’ll also want to clearly define the move out date. If you're a tenant, you may also be entitled to your security deposit, even if you owe back rent. Ensure to address this in any cash for keys agreement.
The entire agreement should be written, so that either party can rely on the terms if problems arise. Also remember, any cash payment may be considered taxable income and you might need to reserve some for paying taxes.
If the bank has not retaken ownership but foreclosure is pending, an owner may be asked to execute a ‘deed in lieu of foreclosure’ as a substitute to the foreclosure. In this circumstance, a cash for keys agreement might establish the terms for handing over the property but the homeowner still has to transfer ownership to the lender.
A deed in lieu of foreclosure achieves this transfer. If foreclosure has not been completed, any owner may be asked to complete this step. The deed will have to be executed and filed with the local property records government entity.
The key is to understand that a deed in lieu of foreclosure may be used in conjunction with a ‘cash for keys’ agreement, if you still own the property. But in the case of a completed foreclosure or a tenant facing eviction, a deed in lieu of foreclosure is not necessary because the resident is not the property owner.
A cash for keys agreement can provide a quick solution to a difficult problem for everyone involved. If you can’t afford your rent or are facing foreclosure, these agreements may help provide the cash needed to transition to another property - without the stresses and expenses associated with an eviction.
Though you should research all options as you don’t want to relinquish your rights in a property if you have a valid defense or intend to make up the delinquent payments. If you suspect that you have a valid defense you should seek legal advice before signing any cash for keys agreement.