Understanding Cash for Keys: A Guide to Avoiding Foreclosure

If you are about to lose your home to foreclosure, your lender may offer you cash to leave your home quickly and in good condition. This payment, commonly known as "cash for keys", can help you with the expense of finding and securing new housing after the foreclosure. Contact your lender and ask whether it offers cash incentives to move, and how you can qualify for its program.

Foreclosure

When a homeowner defaults on her mortgage, her lender must complete a legal process to seize the home so that it can be resold. This process, known as foreclosure, varies by state: Some states require that the lender go to court to obtain a foreclosure, while other states have an administrative foreclosure procedure that does not require a court order. Once a lender forecloses on a home, the lender can evict the former homeowner so that a new buyer can take possession of the property.

Cash for Keys

Eviction is a separate legal process from foreclosure, and can take months to complete. If your lender forecloses on your home, it likely wants you out as soon as possible. If you agree to leave on your own, without formal eviction proceedings, the lender or buyer may offer you a cash payment, commonly known as "relocation assistance" or "cash for keys". The amount of money you can receive varies, but it may be enough to help you pay for your moving expenses and make a security deposit on a new place to live.

Qualifications

There is no law that requires lenders to offer cash to foreclosed homeowners, and each lender has its own qualifications for a cash-for-keys offer. One typical requirement is that you remove all of your belongings from the home. Another is that the home is "broom clean" (swept out) when you leave and turn your keys over to the lender's representative. Minnesota Public Radio reporter Jessica Mador cites an example of a lender that encourages speedy relocation by offering larger payments for early move-outs. Ask your lender if it offers a similar incentive.

Renters

Lenders and new property owners sometimes offer renters who live in foreclosed properties a cash-for-keys option. New owners or lenders often make these offers when they want to get previous tenants out of a home or building quickly. Renters who live in foreclosed homes should understand, however, that the federal Protecting Tenants at Foreclosure Act, and tenant protection laws in some states, give tenants a significant amount of time to remain in their homes after their landlord loses the property to foreclosure. The amount of time varies from 90 days to the end of the renter's lease term. Renters do not have to accept a cash-for-keys offer, and should make sure that they will be able to secure new housing quickly before agreeing to move.