“Cash For Keys” Or Why You Shouldn’t Trash Your House On The Way Out The Foreclosed Door


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.)

The incentive appears to be necessary: In March, one out of 538 homes is in one of the stages of foreclosure, according to Realty Trac. What these homes may look like is anyone’s guess. For Steele V. Propp, a foreclosure specialist and loss mitigator in Minneapolis, there’s a 1 in 10 chance that you’ll come across a home in really good condition. “It looks like someone was vacuuming on the way out,” says Propp. In Minn., where the cash for keys payout is anywhere from $500 to $1,000, a written agreement is made in exchange for the check so that property is left in “broom clean” condition. In some places, the offer is as much as $3,000.

How many people are biting? It depends. Cash for keys is not always considered a bargain by homeowners. Losing their home and credit is a heavy burden. “Most people don’t want cash for keys," says the researcher Popik. "They want their credit ratings to stay intact."


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