Sounds like something you'd hear about in Arizona, Florida, Las Vegas or California real estate markets. But we live in Madison WI and the Madison WI real estate market isn't that bad! Puhlease people, the economy and the burst housing bubble has sprinkled (and sometimes exploded) into every corner in the United States. I'm a glass is half full kind of a girl, but I'm also very tuned into reality. And even when the glass is half full and there are just as many opportunities in a swimming pool of threats, you've got to know what is out there.
Cash for Keys is when the lender just wants the keys back to the house that they hold the mortgage on and is willing to pay the homeowners (who are in default on their loan) to move out and sign the deed over to the bank. This gives the bank the ability to sell the house and get it off their books.
Why would a homeowner do this?
1) The homeowners are ready to move on from what is many times a nightmare of a situation. Typically there is a hardship that has happened; a divorce, loss of a job or the inability to refinance for a more manageable monthly payment and it has become clear that the homeowner won't be able to get back to the same place they were and will need a less expensive monthly payment.
2) Cash in hand. When times are tough and money is tight, getting cash to move on and into a new place is appealing. You aren't pushed out quickly, you can typically negotiate with your bank so you have time to find an apartment and get the house clean before signing the paperwork and handing the keys over.
3) Avoid foreclosure. Let's get something straight though, you are not avoiding foreclosure consequences completely, you are signing over the deed in lieu of foreclosure. It still can have a negative effect on your credit. Check with a credit counselor or attorney before making a decision like this.
Why would a bank want the house back? That we'll leave for another post.
Yes, we live in our bubble in Madison WI, and life is progressive and purposeful here YET there are many suburbs of Madison that have been hit hard and as a homeowner, a concerned neighbor and/or an investor, it is important to understand what is happening and what options are available.