Cash For Keys
Tuesday, November 3, 2009
The Cash for Keys program is putting money in the pockets of homeowners who are facing foreclosure. We speak with a local realtor about the program.
MAUREEN CAVANAUGH: I'm Maureen Cavanaugh and you're listening to These Days on KPBS. Despite the fact that Wall Street is rebounding and despite all the talk about loan re-modification, the fact is, thousands of Americans are still looking at the prospect of losing their homes and their homes falling into foreclosure. It's estimated that more than 13% of American homeowners with a mortgage have fallen behind on their payments or are in foreclosure. There comes a point at which the question is no longer whether an owner can keep the house, but what is the easiest way of walking away from it. The Federal Housing Administration and many banks are now offering what they call a Cash for Keys program. It's an effort to avoid a long foreclosure eviction process for both the lender and the owner, and it allows the former hone – homeowner, that is, to walk away with at least a little bit of money. Joining me to talk about this program is my guest Erik Weichelt. He’s a realtor and president of the San Diego Association of Realtors. Erik, welcome to These Days.
ERIK WEICHELT (Realtor): Good morning, Maureen.
CAVANAUGH: Now I gave a thumbnail description of this Cash for Keys program. Tell us more about what it is and how it works.
WEICHELT: Okay, well, what Cash for Keys is or what we call relocation assistance, it allows the previous mortgager or the tenant to get some relocation assistance if they move out a little bit quicker than what would cause or be caused under an eviction. So, in essence, the banks are saying, hey, we could spend this money with an attorney or we can give you some money, help you with your moving, with your packing, with your relocation because we understand that obviously times are a little tough. So they utilize that in an effort to speed up the vacancy and also to be helpful to those people that have, you know, they’ll either be tenants that didn’t even know about the foreclosure or previous homeowners that have really fallen on hard times.
CAVANAUGH: Now when we’re talking about the homeowners, how far along in the process do you have to be for this Cash for Keys program to kick in? I know that the FHA has actual conditions that somebody has to meet. Could you tell us those conditions? And are they basically followed by all the banks and lenders?
WEICHELT: Well, actually it’s up to each individual lender to offer this program. The majority of them do. I don’t know many that don’t. And being one of the primary brokers for about 50 different banks, I can tell you I think all of my clients do that but what happens is, is we go to the property once a property’s been assigned, it’s been foreclosed on. We make contact with the occupants and let them know that if you don’t know, this property has gone back to the bank. That’s when we offer them an extension because the banks will say, hey, you can offer up to such-and-such amount. We offer that to them then and let them, you know, talk about it but call us within 48 hours because, if not, we need to let the bank know that unfortunately they’re going to have to go through the eviction process.
CAVANAUGH: Right, and also, I was reading about this and it seems that some properties actually can avoid a formal foreclosure, they can work out a deed in lieu transaction with this Cash for Keys program. Explain to us what that would be.
WEICHELT: Well, a deed in lieu is, is when the mortgager of a property says, you know what, I can’t afford it and here’s the keys. That means they’ll get a deed in lieu of foreclosure. They won’t have to go through the foreclosure process. Now, folks out there should know that that still is a foreclosure. That still shows up on the credit as a foreclosure and that does not wipe out any debt owed if there’s a second trust deed or something like that. So, you know, they really want to talk with probably an attorney about that on that process but, yeah, deed in lieu means, hey, I’m just – I’m going to give you the keys instead of you come after and take the keys.
CAVANAUGH: I’m speaking with realtor Erik Weichelt. He’s president of the San Diego Association of Realtors. We’re talking about the Cash for Keys programs used by many lenders and banks now to avoid a long foreclosure eviction process and allow the former homeowner to walk away with a little bit of money. Let’s break it down, Erik. What value is this to both the lender and the homeowner? Why would a lender want to sign onto a program like this?
WEICHELT: Well, one of the – There’s a couple of different facets of it that I think are intriguing for both sides. One of them is, you know, if you go through an eviction – now, think about this, if you lose your home in foreclosure, that goes on your credit. If you’re going to go and rent a place and the landlord pulls the credit, you can say, hey, I fell on hard times, I couldn’t afford the house, it got foreclosed on. Imagine if you have an eviction on that as well. So they’re giving the previous mortgager an opportunity to not have an eviction on their credit report, they’re giving them a chance to have some funds so they can relocate, but what they want in return is get me that property back sooner so we don’t have to go through the – clog the courts up with an eviction. Be…
CAVANAUGH: Yeah. All right. And also, don’t a lot of them require that the properties be broom clean?
WEICHELT: Yeah, it…
CAVANAUGH: What does that mean?
WEICHELT: Well, it – it’s – they want it broom swept – broom clean condition. That means that, you know, you don’t have to hire a, you know, painter. If there’s something wrong with the house, if there’s a leaky roof or something wrong, you don’t have to fix any of that. What they don’t want you to do is leave all your trash and debris at the property that you don’t want, the leftovers of moving, because then they have to pay somebody to clean that out. They say you leave it in broom swept condition and we’ll give you this check.
CAVANAUGH: I hear that there’s a sort of cottage industry springing up of people sometimes working in realty offices who actually go in and clean up foreclosed properties that haven’t gone along with this Cash for Keys program…
CAVANAUGH: …is that correct?
WEICHELT: …absolutely. You know, of course, there’s clean – I get e-mails and phone calls probably twice a day from handymen, trash out companies, cleaning companies, landscaping companies. Yeah, there is. Now whether or not a real estate office, I don’t know but obviously no realtors because if they’re in the industry they’re going to know that there is, in essence, an industry out there, as you said, for that service.
CAVANAUGH: Well, if a homeowner who’s losing the property, the property is either in or going into foreclosure, decides to try to get on this Cash for Keys program…
CAVANAUGH: …with his or her lender, how much money can they get?
WEICHELT: I’ve seen it from $1500 to $8,000. I mean, I – And the numbers seem to be increasing because the banks really want to utilize this process. Now, remember, that’s money that the bank – I mean, the bank’s already losing out here. But they’re willing to do that because they think this expedites it. They think it helps folks when they relocate. They think it gives them a cleaner property. So, I mean, it can really range in the high dollar amount.
CAVANAUGH: And what are the amounts based on? Square footage? Or what?
WEICHELT: Yeah, the – depending on the particular client or the bank, a lot of them will do like area rents and they’ll give you like three months area rent. So if your house would rent for $1,500 they’ll offer you up to $4,500. So it varies. I’ve also had some homes that are, you know, million dollar homes that they’ve said I’ll give them $1,000 to move and that doesn’t help. So, of course, I’ve got to go and educate my client, the bank, and let them know this is a 10,000 square foot house. To rent this, even if you downsized, you know, to 5,000, it’s going to cost them $3,000 to $4,000 a month so let’s really rework those numbers. And, you know, and we do that, as realtors, for our clients. We do give them that information.
CAVANAUGH: And do you get compensated in this transaction?
CAVANAUGH: Okay. This is just a service you’re providing.
WEICHELT: It’s part of the deal. Whenever you decide to do bank-owned foreclosures, you get – I mean, that’s a part of the deal. You do occupancy inspections, you negotiate Cash for Keys, you get bids, you provide evaluations, it’s just one of the tasks you do.
CAVANAUGH: And is another reason the Cash for Keys program been adopted because it’s actually good to maintain property values in the neighborhood?
WEICHELT: Well, I would think – Well, anytime you can get a property that is – you know, and I completely understand if a previous mortgager can’t afford his mortgage, there’s a good chance the lawn’s not being watered, that the maintenance isn’t happening. So we think that the sooner we can get that person moving on – just, you know what, this has been a bad chapter, let’s move on. We get the bank in there so they can get that lawn back up, they can get the property clean, they take care of it. You can do deferred maintenance. So we – the banks agree and we agree that that helps expedite that process.
CAVANAUGH: And you said, Erik, that in your capacity as a realtor and the stories that you hear from other people involved in the Association of Realtors, that there are people who sort of make it very difficult. They just don’t want to leave their properties.
CAVANAUGH: Do they actually stay in their properties until an eviction notice is on the door?
WEICHELT: Oh, absolutely.
CAVANAUGH: And what is that – tell us what that process is like.
WEICHELT: Well, you know, that’s probably one of the most difficult, at least on my – in my perspective, to see a homeowner that lost their home through foreclosure that decided to battle the eviction understanding that, I mean, it’s no longer your property, and have stayed there. I’ve been at properties with marshals, you know, it’s a marshal lockout to where they’re there and there’s not one item in that house moved. It’s very troubling. My firm, of course, Weichert Realtors, you know, we say let’s work with the bank to get this done but you’ve had months. It’s unsettling. It’s unfortunate but, yeah, that does happen on occasion.
CAVANAUGH: And I’m wondering, you mentioned earlier in our conversation that the Cash for Keys program is sometimes offered to renters who are in a property that’s been foreclosed on and they need to get out.
WEICHELT: Yeah, and that is. Actually, originally the Cash for Keys was specifically for tenants because tenants weren’t responsible for the mortgage. Some clients had said, or some banks, if it’s a previous mortgager I need to know because we’re not giving them Cash for Keys because they’ve obviously not paid their mortgage in several months. They should have the money saved up. They’ve changed their tune. They’ve decided to offer it to everybody, but, yeah, tenants sometimes can get hit the hardest although it should be known that tenants, they know that the property’s in foreclosure because the foreclosure notices get mailed actually to the house. They also get posted on the door. So they’re aware but it’s still going to be very troubling for the tenants.
CAVANAUGH: As someone who is in the business and I imagine you’ve made your career of this business, and selling houses and having people be happy as homeowners and so forth, this must be a very sad time for you at times.
WEICHELT: You know what, it’s very interesting that you said that, Maureen, because when I first started in this business – and quite frankly, when the market’s good, I sell a lot more. We don’t just do foreclosures, we just are one of the top foreclosure brokerages because we’re good at it and we’ve been doing it a long time. But I was sitting with an asset manager who is someone who works for the bank and I said, man, this is kind of a bummer, you know, we’re – I mean, we’re dealing with people selling homes that, you know, they lost their house in foreclosure so it’s not a happy go lucky time. And, you know what he said to me? He says, Erik, I look at it this way, we’ve got to get that home back so we can sell it so we can lend it to money who are going to pay us back. And if you look at it that way, it’s like I’m getting these properties, saying, okay, guess what, let’s get that money back to the bank so they can lend it. And, you know what, that’s what they’ve done. So if you look at it that way, it’s okay. But at the end of the day, it’s a job that needs to happen. It’s a process within our homeownership. I mean, there’s home transfer of real property happens by gift, adverse possession, which is, you know, a short sale or a REO or a traditional retail sale, and those are the three ways of transfer of real property. And, you know, we can do two.
CAVANAUGH: And as you say, with this Cash for Keys program, which is offered by the FHA, a number of banks…
CAVANAUGH: …and lenders, people are able to walk away from their properties and have a little extra money in their pockets and you were talking about not having eviction along with the foreclosure on their credit record.
CAVANAUGH: What kind of damage can having an eviction plus a foreclosure, both on your credit record, can that stop you from, I mean, being able to even rent?
WEICHELT: Absolutely. As a landlord myself, the one thing I do with every tenant is they come in and we run credit and – but we run a landlord’s credit check and I don’t – if you missed a, you know, a Sears bill, I don’t really – that’s no big deal. But I’ll tell you one thing, you get evicted, I want to know why because that’s a good example or that could be a, what’s that, a precursor to what’s going to happen when you’re a tenant of mine. So if you have a foreclosure on there, it’s understandable. Yeah, you fell on hard times. But I’ll tell you when you have an eviction of top of that, it doesn’t look good and I’ll tell you one thing, it’s either going to cost them more money with a deposit or they’re not going to live in a really quality place.
CAVANAUGH: Now how can people who have heard about this through this program and they want to – they’re in a bad situation with their house and they want to find out a little bit more about Cash for Keys, where can they go?
WEICHELT: Well, you know, there’s no one source. I mean, I could give them my information. I have no problem with that. There’s no one source until you actually get the paperwork delivered to you. But if they wanted to call my office, I’d be more than happy to share that information with them. They can give us a call at 619-298-3900 and I am the president of Weichert Realtors Elite. And I can give them all the details they have. Whether or not it’s my assignment from the bank or not, I can let them know how the process works.
CAVANAUGH: Well, I want to thank you so much for talking with us today.
WEICHELT: You got it, Maureen.
CAVANAUGH: I’ve been speaking with Erik Weichelt. He is realtor and president of the San Diego Association of Realtors. And if you want to comment about this segment, you can go online at KPBS.org/TheseDays. Now coming up, we’ll get an update on the controversy in the deaf community over cochlear implants. That’s when These Days continues here on KPBS.