Cash for Keys: What is it?

homeowner giving their keys to the home, while the buyer of the home is handing over the money for the purchase of the home, illustrating the process of selling a home during a foreclosure situation.

What is Cash for Keys?

If foreclosure is imminent, and a lender is considering a deed in lieu of foreclosure, “Cash for Keys” may be an option.  Under this arrangement, the lender will pay you to vacate the home and leave it in good condition. Part of that deal is the home is not damaged or vandalized, is “broom clean” and there are no missing appliances, fixtures, wiring, etc.

‘Broom Clean’ Condition

In real estate transactions, it is common to ask that property be “broom clean” or in “broom swept condition” before transferring ownership. There is no official legal definition for what “broom clean” means, so real estate contracts usually specify what they mean. At a minimum, to be broom clean, the property must be free of garbage, unwanted debris, and furniture. There must also be no damage to the property. In one legal case, the buyer of a property felt the house was not properly cleaned and sought to withhold escrow funds to pay for professional cleaning services. The court found that “broom clean” was not the same as “professionally cleaned,” and held that the seller should get the full escrow amount refunded.  In any cash for keys agreement, it’s important to consult the specific language of the agreement to determine what conditions are expected of the property.

Why Would a Lender Offer Cash for Keys?

Foreclosing a property is only part of the process for the lender. Then they have to enter into an eviction proceeding to get the residents out. This is costly and time-consuming, and then they’re likely to need to hire someone to repair and clean the property.  Depending on the situation, a homeowner might even deliberately vandalize a home to make it more costly for the lender who foreclosed on them.  To avoid all of this time and potential cost, the bank might agree to give you cash to move out on a mutually agreed-upon date.  Typically they pay the cash after you exit the property and a home inspection is completed..

Cash for Keys and COVID

During the COVID-19 Pandemic, many landlords were legally forbidden from evicting tenants. However, they were still allowed to offer cash for keys agreements.  As long as the landlord complied with the law, it was always legal to offer a tenant a settlement to vacate the property, even if they were legally protected from eviction. Some localities drafted further laws specifying what disclosures were required, and giving tenants time to back out of a cash-for-keys deal after initially agreeing. These kinds of regulations could be hyper-local, where state law sets a baseline but counties and individual cities enact additional restrictions on cash-for-keys agreements. These COVID-related policies tended to focus more on landlords evicting tenants rather than lenders foreclosing on mortgagees.

How to Get a Cash For Keys Agreement

If you are considering a deed in-lieu of foreclosure, your bank may have a Cash for Keys program that you qualify for.  Also understand the point of the money being offered: it’s there to help you move. So what will it cost for you to pack up, clean the property, and move somewhere else? Don’t forget utility deposits if you have to back out of a service agreement. If the lender doesn’t offer enough for you to accomplish this goal, it’s reasonable to ask for more.  But bear in mind the reasons we discussed for the bank to offer this cash in the first place; it’s cheaper than going through foreclosure, eviction, and repair of the property. So don’t be too aggressive in your negotiations; if you insist on too much money, the lender might just decide to put the money toward the eviction proceeding instead.  It might help your negotiation if you offer to move more quickly: if you promise to be out immediately, you will probably be offered more money than if you stayed for weeks. It’s important to get a Cash for Keys agreement in writing, that clearly states who the current owner of the property is, and that you will not be responsible for any further payments when you exit. There should be no intermediary between you and the lender to whom you must make rent payments, so beware of landlords trying to extract extra payments before your exit.  The written agreement should be enough for you to obtain a judgment if the owner fails to pay after you hand over the keys as agreed. If you’re considering a deed-in-lieu of foreclosure and would like to negotiate a Cash for Keys agreement, talk to a HUD-approved housing counselor for expert advice on your situation.

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Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over two decades of experience in the industry.

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