Hey group,

Just finalized a foreclosure on one our borrowers last week and need to arrange a cash for keys arrangement.

Whats the going rate/term for this type of deal? I was thinking $2500 if they vacate within 30days, and the house is in "swept clean" condition. Payable after they leave, obviously.

Should this be a signed contract? If so, anyone have a good example you could supply me?

It is my understanding I should go ahead and start the eviction process as well just in case things don't go as planned.

Any other tips/suggestions I should be aware of?? Luckily, we are on good terms with the borrowers so I don't suspect any issues other than a possible procrastination situation from them.

Spencer

Spencer..we just FC'd on a property last week with a tenant situation. We're grappling with the same issues. We're trying to propose a cash for keys arrangement but we seem to be getting a bit of the run around. We're going to try and give them 4 days to tell us if they want to do the cash 4 keys...otherwise we'll start the eviction.

I don't know whether we need a contract. I guess we'll do so if they ask for it. We thought we would offer $1K or $1.5K. I would rather do the friendly cash 4 keys than a forcible eviction....Aside from the civility, we want to minimize the risk of damage to the property.

Do you have a good eviction firm to use? My property is in Riverside County. THX Martin

I like offering the carrot and the stick. But not putting the carrot in their hands.

There's a diff. here b/w former owner and tenants.

Former owner may need serious help on a security deposit for a new rental, and a good word/reference in order to be able to rent somewhere. To them, offer to pay for the moving van, moving boxes and packing crew of 2-3 guys for a day, loading and unloading.

Remember that sometimes owners have been in their home for years and the whole idea of a move terrifies them - so make that process easy on them - best question you can have any tenant/owner answer for you is "what are you most worried about right now?" and then directly tailor your cash-4-keys solution to them. May not have anything to do with cash at all.

For tenants - you can offer the same thing of moving truck, etc, and pay for agent's brokerage commission if they're using one for the move, for example.

Other options: if you're offering to pay someone $2,500 - what about offering them a used car for that kind of cash? Must be a few available. Call up the local car dealer, find out if you can rent one of their used cars for a couple of days, write "Jane, you can drive off with this car if you move out of the house by Tuesday! Call me on 415-555-1212 before Sunday night at 7pm otherwise no car." in the windshield and have someone from the car dealer park the car in front of their house. Wait and see the response.

Key here is to SELL to the NEED. Don't operate in a vacuum and push what YOU think they'll respond to. Reach out and find out what THEY want and need. It becomes that much easier to sell them on the solution after that.

Thanks Dean.

Funny you mention the moving truck/labor, as that is the solution it looks like we are going with. They couldn't meet our 30day deadline due to the holidays plus the huge snow storm in the northwest, so I gave them a couple extra weeks and offered to pay for a couple guys with a truck for a day. They look to be happy with that arrangement.

Used car offer is interesting, although I'd think most people would prefer cash in a situation like this. Also $2500 doesn't buy much more than an '83 Corolla these days. They might take it as an insult....

How about the eviction process? Do you start that process no matter the situation? I'd like to have it started just in case, but we have good rapport with the borrower, and last thing I want to do is break that by serving them with an eviction case. Trust is obviously very fragile with most of these people.

Martin,

I'd suggest asking your foreclosing trustee if they handle evictions, or have a referral. Thats what I did, and got a great firm that works with the trustee for all their post-fcl evictions. Otherwise, give a call to some local RE attorneys.

$2,500 seems steep to me. I would base it on the market that you are in. I did a few "Cash for Keys" early in my investing days to get people out properties that I had sold with owner financing. I paid them $750.00 to hand over the keys and leave it in "broom" clean condition. $750.00 was about their monthly payment and the going rate to rent an apartment. So I would base your amount on the local market. In other words you may need to pay more in San Francisco than you would on a $50,000 house in Kentucky.

Never, ever fall for the trick of "I need the money now to rent my new place", only give them the full amount when you get the keys.

Rick
North Georgia

"My two cents available in most fine stores for a Dollar!"

Update,

Borrowers should be out this weekend. Spoke with the movers, who are going to the house tomorrow, and the borrower instructed them to take ALL the kitchen appliances!

Called the borrower, had a little chat, explained to them that items connected to the house should legally and ethically be left, and that they can't simply use the mover we are paying for to "strip" the house.

This is where I think a written contract would come in handy after a FCL. Getting all the details on paper for the borrower to understand, along with the conditions that need to be met to receive the "carrot", as well as the conditions that need to be met to avoid filing for eviction. Lay it out black/white, so there is no gray area, such as "lets take the appliances, light fixtures, carpeting, wall sockets, toilets, along with the kitchen sink"

I'll keep you guys posted on the outcome....

I had to Foreclose on someone today who lived out of state. The home had tenants. I will try cash for keys but if I have to evict do I need some kind of paperwork or can I just call the Magistrate Court and do it over the phone?

Thanks

Update on this, borrowers moved out after about 45 days. Ended up paying $500 in moving expenses. Finished rehab (light paint/carpet), and had 2 offers on it before it even hit the MLS. Under contract now, and just waiting to close by mid-March.

Playing the cash for keys game on another deal we just finalized foreclosure proceedings on in SC. Don't have the same rapport with this borrower, but have an agent working the deal with solid C4K experience.

Here's an aha on the C4K debate. Assume no jr lienholders.

In CA, I could find buyers willing to pay 75% of market value for an REO.

In CA, I could roughly buy non-performing notes for 50% of market value.

So the act of taking a property to sale, and eliminating primarily the Bk risk, is worth a full 25% of the home's value. Always keep this in mind.

So, let me go through some numbers:

$100,000 home's market value
$150,000 1st mortgage
$50,000 purchase price

How much $ should I offer the Homeowner in a C4K offer?

Well, let's say we offered $15,000. What would the yield be on that investment, assuming the homeowner accepted, and we took 4 months from purchase of note to sale of REO?

The answer would be ~45%.

You spent $50,000 to buy the note, and another $15,000 to get the deed, and you sold the house for $75,000 in 1/3 of a year, so take the yield and multiply it roughly by 3 to get the annualized return.

The aha is then that I should be justified paying up to 15% of the home's value, in order to transform my Deed of Trust into a Deed. The time savings is substantial, and the net impact on yield is significant.

So before you skimp on the C4K offer and think "damn borrower, you don't deserve a penny!", run some numbers on the impact having Deed could afford you today!