What do you do when you’re a lender with a foreclosed property and you want the ex-homeowner out quickly and neatly? Pay them to leave sooner.
It’s called “cash for keys.” It’s become a common practice in other parts of the country, and there’s some evidence we’re seeing more of it in the Twin Cities.
I’ll say upfront I don’t have a lot of detail but I’m interested in learning more. Jim Dooley, an Apple Valley real estate broker who’s part of MPR’s Public Insight Network, mentioned to us recently it’s a growing trend here.
We asked around to find people with cash for keys experience in this market and were introduced to Twin Cities Realtor Pat Paulson. He says he’s been involved with about 20 cash for keys situations over the past year and a half.
Cash for keys has been around for years, he says, and it’s increased with the jump in foreclosures. “I would expect that it is growing in popularity since it is a good practice to safeguard and get access to the properties quicker.” Paulson says he typically gets involved after the lender’s taken title to the property.
Many REO (real estate owned) sellers assign properties to an agent right after sheriff sale, a few months before the end of the redemption period, when the owner still has rights to the property (MinnEcon note: redemption period is typically 6 months after the sheriff sale.)
With most of mine, the owner or tenant, if the property is occupied, knows that they will have to move soon. However, some tenants seem unaware.
(Following the redemption period), after I verify the occupancy, the seller decides on a strategy to have the property vacated. The first step is always to start the eviction process with a local attorney. They used to give the occupant 60 days to move, but have recently changed that to 90 days. After this, they often, but not always, instruct me to offer CFK (cash for keys).
The typical offering is $2,000 if the occupant moves out in 30 days. Specifically, they must have all their personal property out except in-use working appliances, and the property broom-swept clean.
Upon inspection, I give them a check for the keys then immediately have the locks changed.
Paulson says this works out well for many occupants, although, “it is always a challenge for them because they must find a new home before they receive the money. I have had new landlords call me to confirm that a prospective tenant will be receiving this money.”
Another cash for keys perspective comes from Twin Cities foreclosure specialist Steele V. Propp.
Normally, he says, the cash deal is offered around the end of the redemption period. The lender or management company doesn’t have title to the property until the redemption period ends “and in most instances they would rather see the property occupied than vacated.”
Currently I have a couple of properties in redemption that are occupied and I have been told to not bother the occupants. I am simply to check on the houses on a weekly basis to make sure they are not vacated and the house is not unsecure (or worse yet, the heat is off now that it is winter).
If a property can be shown to be “abandoned” the redemption period can be reduced from the 6 months to 5 weeks. That process does take some time as it is a legal one. Notices are posted on the property with a hearing date and the owner/occupant is asked to attend if someone is still actually living there. If no one shows at the hearing the judge will usually start the shortened 5 week redemption.
As to cash for keys amounts, the companies I work with typically offer a sliding scale. The faster vacated, the more they offer. $1,500 to $2,000 is fairly average if vacated in two weeks. (Although I had a duplex this summer that each of the three tenants were given $750.)
We have an agreement signed with a specific date and that the property be left in “broom clean” condition. I inspect the property and if terms and conditions are met, hand them a check.
I have a few more feelers out on this and I’ll write another post if I get something new.
If you have experience in Minnesota with cash for keys — lender, home owner, real estate agent — please post below or contact me directly and let me know your experience. Is this a good, civil way to avoid a messy eviction battle and keep a house from being trashed? Or is it a deal that foreclosed owners take too quickly?
All thoughts welcome.
Here’s a quick read from the Minnesota Attorney General’s Office for people facing foreclosure.
A 2009 law allows homeowners to postpone the sheriff’s sale for five months.
Got a perspective to share on Minnesota housing markets? Post below or contact me directly.
Click on the map icons below to see what others in our Network have said about the housing market the past year. Then add your story.