Cash For Keys After A Foreclosure – What You Need To Know

Cash For Keys Agreements Explained

A cash for keys agreement is an arrangement between a homeowner and their lender when the homeowner is in foreclosure. In this arrangement, the lender agrees to pay the homeowner a certain amount of money. 

In return, the homeowner will quickly and peacefully vacate the property, without damaging anything. This agreement helps homeowners by giving them financial relief while also helping lenders avoid the lengthy and costly process of foreclosure.

The term “cash for keys” comes from the fact that homeowners essentially receive money for giving up their keys to the property. In most cases, a cash for keys agreement is beneficial to every party involved – and it can be very beneficial to real estate investors as well.

What You Can Save With A Cash For Keys Agreement

At first glance, a cash for keys agreement may seem like it only benefits the homeowner and lender. However, it can also help investors save time and money.

A cash for keys agreement benefits the homeowner by allowing them to move out of the property without incurring additional costs. They won’t have to pay the balance left on their mortgage and can leave with a little money in their pockets, which they can use for moving expenses or a down payment on another place. 

Without a cash for keys agreement, the homeowner might end up with nothing at the end of the foreclosure process and get evicted from their home.

Of course, the question is, how exactly does a cash for keys agreement help investors? The following are a few examples of how real estate investors can save time and money with a cash for keys agreement:

Save Time

Home foreclosures are a great investment opportunity. However, there are many steps in the process and it can take a long time to complete. Although it varies state by state, the homeowner has a lot of rights when it comes to remediation. 

As such, it might take several months or even more than a year before the foreclosure is completed. In fact, even if the property is scheduled for auction, the sale can be stopped if the homeowner and the lender find a solution. 

Additionally, in some states, the homeowner can pay off what they owe and regain ownership of the property for a certain amount of time after their home has been auctioned off.

As an investor, the last thing you want is to attempt to invest in a foreclosed property only for it to fall through at the finish line. However, if the homeowner agrees to a cash for keys agreement before the foreclosure process, you won’t have to worry about this issue.

Save Time By Avoiding Court Eviction Proceedings

In some cases, the foreclosure process is not enough to remove the homeowner from the property. Depending on the state, the homeowner may have an extended amount of time to leave the property or may even be able to stay after the foreclosure has been completed. In these situations, it may be necessary to go to court and file an eviction notice. 

This process can be lengthy, expensive, and time-consuming. After all, if you’ve bought the house at auction, you won’t be able to renovate or sell the property until the old homeowner has vacated the premises. As such, finding foreclosures where the homeowners have agreed to a cash for keys proposal can save you a significant amount of time.

Save Resources

The lender can save resources with a cash for keys agreement, simply because they won’t have to go through the foreclosure process. The foreclosure process can involve extensive legal fees, court costs, and other associated expenses. If the lender is able to avoid this process, it can be greatly beneficial from a resource perspective. 

Additionally, investors can also save a substantial amount of money on foreclosed properties that are solved with cash for keys agreements. For example, in the following ways:

Legal Fees

You would think that the lender would be the one saddled with all of the legal fees. However, if you buy a foreclosed property and the previous homeowner challenges the foreclosure in court, you could get stuck paying various legal fees. 

In addition, if the previous homeowner refuses to vacate the property, you’ll have to go to court and file an eviction notice. Legal costs can be a significant financial burden for any real estate investor.

Repair And Renovation Costs

Most cash for keys agreements include an agreement that the homeowner will leave the property in a specific condition. This can significantly benefit investors because it lets you start renovating the property immediately.

In addition, you won’t have to worry about the homeowner leaving behind a mess or damage that will require expensive repairs before the renovation process can start. In fact, this is often a risk when buying a foreclosed property – the previous homeowner may damage the property out of spite before leaving.

How Does A Cash For Keys Agreement Work?

A cash for keys agreement is a negotiation between the homeowner and lender that allows the homeowner to receive a lump sum payment in exchange for voluntarily vacating the property. The following outlines how the process generally works:

1. Formal Eviction Notice To The Homeowner

Before even offering a cash for keys agreement, the lender has to send a formal eviction notice to the homeowner. This letter informs the homeowner that they are violating their loan agreement and must vacate the property by a specific date. 

This notice serves as a warning to the homeowner that they may soon face foreclosure on their property. The lender cannot offer a cash for keys agreement until a formal eviction notice has been served.

2. Negotiating A Cash For Keys Agreement

Once the formal eviction notice has been served, the lender and homeowner can begin negotiating the cash for keys agreement. This process typically involves a lot of back and forth negotiation, and every decision must be written into the agreement. 

As an investor, you should seek an attorney’s advice before buying a house involved in a cash for keys agreement. Doing so will help ensure that both parties followed the agreement and that both local regulations and tenant rights were respected. 

For example, if the lender breaks the cash for keys agreement or doesn’t abide by the agreed-upon terms, then you could find yourself in a messy legal situation after buying the property from the lender. 

With that in mind, the following are a few considerations that will need to be outlined in any given cash for keys agreement:

The Move-Out Deadline

The agreement will usually specify the date the homeowner must vacate the property. This can range from as little as seven days to 30 days or more, depending on the agreement. If the homeowner doesn’t vacate the property by the agreed-upon date, the lender will have to seek legal recourse to evict the homeowner

Additionally, the cash isn’t generally given to the homeowner until the day they move out. As such, the homeowner won’t be able to take the money and then break the agreement by not moving out on the deadline day.

The Agreed Cash Amount

The cash amount that is being exchanged for the keys will need to be negotiated between the lender and homeowner. It needs to be enough for the homeowner to give up all ownership of the house without trying to legally fight it during foreclosure proceedings. Additionally, it also has to benefit the lender, saving them time and money by forgoing the foreclosure process. 

Whatever the agreed-upon amount is, it must be clearly stated in the cash for keys contract that is drawn up.

How The Cash Amount Is Typically Determined

The amount of cash paid to the homeowner in a cash for keys agreement will vary depending on the circumstances. It needs to be enough to cover the cost of moving to a new place and the cost of a deposit for a rental. 

After all, the money being offered is meant to be an incentive to leave as soon as possible. If it’s not enough to help the homeowner financially, they will be less inclined to take it. That being said, other factors, such as the property’s value and how much is still owed on the mortgage, are also considered when determining the cash amount.

Generally speaking, lenders will offer anywhere from $500 to $5,000 in a cash for keys agreement, depending on those factors.

The Payment Method

The payment method must also be clearly stated in the agreement. For example, the lender may pay by cash, check, money order, or direct deposit. Whatever the decision is, the agreement should stipulate the payment method so that both parties know when and how the money will be received.

3. Giving Up Formal Ownership Of The Property

When a homeowner is served a notice of foreclosure, it doesn’t take away their ownership. Rather, it indicates that the lender or bank has the legal authority to take ownership of the property if the homeowner does not pay what is due. 

However, the homeowner still has time to pay what is due, so the process of removing ownership from the owner can be long. When homeowners agree to a cash for keys agreement, they forgo that process and give up ownership of their property to the lender in return for the agreed-upon cash amount.

It’s worth noting that having a foreclosure on your credit report can be incredibly damaging. By agreeing to a cash for keys deal, the homeowner can avoid the blemish of a foreclosure on their credit. 

Finally, once formal ownership of the property is given up, the lender will have a chance to inspect the property (as will the investor). Properties foreclosed on and sold at auction often cannot be inspected until after the homeowner has moved out.

Should You Take A Cash For Keys Agreement?

When it comes to foreclosures, a cash for keys agreement often benefits everyone involved, especially if the homeowner is in a financial situation where they can’t pay back the loan. The homeowner will receive money for helping to shorten the process and the lender will avoid a lengthy and costly foreclosure process. 

Additionally, investors can use the opportunity to purchase the property quickly without having to worry about unforeseen legal costs or having the deal collapse at the last second. 

If you’re looking at foreclosed properties as investment opportunities, look for properties where the owners are willing to make a cash for keys agreement with their lenders.

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