Not long ago, on a brisk day in a middle class neighborhood in Nashua, New Hampshire, Thomas Popik was looking at homes with a local realtor, when one struck him as particularly memorable.
The frigid air hit him when he walked in the door. Downstairs, something was obviously missing. “It’s going to be hard to sell a home without a furnace,” said Popik, a research principal at Geosegment Systems, a banking data company. This was not a mix up by the home builder; the previous homeowner stripped the furnace after foreclosure.
Popik's experience is not unique: Neighborhoods across the U.S. are being ransacked. In fact, about 50% of homes have substantial damage following foreclosure, according to a survey of 1,500 real estate agents by Campbell Communications in Washington, D.C. (This is not just due to homeowners looting their foreclosing properties, some do not have the financial capabilities for the home's upkeep, and other times vandals are responsible.) To keep real estate agents from being left to sell homes with floor and carpet damages, holes in the wall, and removed appliances, a preventative measure is being offered to homeowners facing foreclosure; it is known as "cash for keys."What is cash for keys? Well, it is not a stack of bills in exchange for house keys. The money comes in a check. Think of it as a twist on a security deposit: This money is given with the understanding that the home won’t be stripped of valued items or damaged. In other words it gives evicted homeowners incentive to leave the house in good condition.
That's important because many people are piping mad: As they try to sell their home before foreclosure, many are discovering their house is worth less than their outstanding mortgage balance. Lenders see cash for keys as a small price to pay when compared with the cost of repairs. Indeed, the price impact of the damage can be up to 25% of what the home is worth, according to Campbell Communications. (That means a $250,000 home's repairs might cost around $62,500.)