How Does Keys For Cash in Foreclosure Work
Q:At what point in the foreclosure process is “cash for keys” offered?We are in foreclosure on our home, and our auction date is set for the first of November. At what point is this offered? Can you receive it months in advance if you agree to keep the property maintained until you leave, or is it ONLY right before they want you out of the residence? Also, our mortgage company was Wells Fargo, anyone had experience with CFK with them, and if so, how much did you receive?
A:Cash for keys is not always offered. More often an owner offers the deed in lieu of foreclosure to curb the added fees associated with foreclosure because even after you lose the house and the lender liquidates the property, the lender can still come after you for the balance. And they often do exactly that.Wells will not offer it. It is pretty uncommon now anyway.If you are the owner you need to leave in Nov.If you are a renter you can pay Wells Fargo rent for 90 days after they take possession.They are not going to pay you anything as they can sue you for damages after you pay them any rent.
Unfortunately for the homeowner and the investor and transfer of funds “off” or “outside” the HUD-1 closing statement is actually bank fraud. I can almost hear real estate gurus screaming and turning in their graves as I write this! However, the reality is that both parties are a part of a banking fraud by exchanging any type of “good and valuable consideration” off of or outside the closing statement (HUD-1). Sometimes attorneys will even allow a small check to go “off the HUD” if it is less that some arbitrary $1,000 or $2,000, however, it is still bank fraud in the eyes of the law.
If a homeowner is cooperating in doing a short sale, he has presented the lender with a “hardship letter” explaining his personal situation and it is the responsibility of the person doing the short sale to ask the lender for a “keys for cash” payment to the homeowner. This is simply where the lender agrees to a small ($1,000 – $1,500) payment that is listed on the HUD-1 for an agreement that the homeowner will leave the property in “broom swept” condition and leave all the major appliances in the property. The attorney for the closing can hold the funds in escrow until an appointed trustworthy person goes after the closing and checks the property.
The second type of keys for cash program is where a homeowner has refinanced his property within the past three years and goes into foreclosure. However, in this case the homeowner has a forensic mortgage analysis done and it is determined that a Truth-in-Lending Act (T.I.L.A.) violation has occurred. This is a serious Federal law violation that requires the lender to give back all the payments made by the homeowner to the lender. Yes, it means that the lender will not only be not foreclosing, but he will be paying the homeowner back all his mortgage payments.
TILA is a viable defense to a mortgage foreclosure if the homeowner has refinanced in the past three years and certain disclosures or APR calculations were done incorrectly. If a homeowner qualified for the TILA defense, he can expect to stop making mortgage payments and not go into foreclosure and eventually get all his mortgage payments refunded. In actuality, most lenders have offered the homeowner a “keys for cash” to buyout the homeowner rather that lose the mortgage note being deemed invalid.
So you have seen two very diverse ways that lenders will pay homeowners to leave their homes to facilitate the lender getting control of the property in better condition or so as not to lose the entire principal amount of the loan in an extended court battle that they can’t win. The root of the TILA problem is first the improper disclosure or material facts to the borrower, and the last minute changes that the closing agent makes without re-calculating the APR using the new HUD-1 closing costs.
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