Keys for Cash

19 Replies

I just bought my first house at a foreclosure auction today after 3 attempts on other properties. I've been flipping REOs so far. The auctioneer was inexperienced, lost (could not find the correct legal location of the auction, I had to call her on her cell), could not pronounce "situated", read the entire legal description down to the manhole cover on the SE corner of the property and was personable and pleasant. Weirdest way to buy a house ever.

The owner is living in the house. I tried to contact her a few times before the sale to try to implement one of the pre-foreclosure strategies. Hand written notes. I did not have the nerve to knock on the door. She never responded.

Now I own the house and she is in it.

Can someone outline the key elements of a keys for cash agreement in a foreclosure situation. I imagine they have to agree to

  • Leave by a certain date.
  • Give up their right of redemption
  • Agree than anything they left behind was abandoned and can be discarded or given away.
  • Hold me harmless for anything that happens to them while they remain in the house.

Have i got it covered. Anything missing? Any agreements out there I should look at?

Any other approaches or advice to consider. It was my fourth auction, but the first time I actually came home with a property.

Congratulations! I don't have any advice, as I have yet to succeed at auction, but the list looks good to me.

Hi,

I have purchased a couple of houses in California and found myself in the same situation. In my experience, your best course will be:

-Wait until you receive your trustee sale deed in the mail and record it before reaching out again. Typically this is 10-15 days in California. Once the deed is recorded there is no ambiguity. In between there is time for shenanigans by the owner or the owner's lawyer. (Gut wrenching days to wait after the crazy auction lady took your cashier's check, right?)

-Once you record your deed, bring a copy of it with you and either try to speak to the occupier, and bring a polite but firm letter and post the letter and a copy of the deed on the door. "Dear XYZ, in an auction on ABC date, my company DEF purchased the property at 15 Magnolia Lane. I need for you to contact me at 123-4567 or at youraddress(at)email.com at your earliest convenience so we can discuss your plan to move out." When people see the trustee deed and your letter, they pretty much know the game is over.

-If you don't hear from them, you need to post more formal notice (3 days to quit for foreclosure) and consider legal options.

I have hired a lawyer to draft cash-for-keys agreements for me. I may have been overcautious, but I know from a title insurance perspective I felt in better shape with a professional document releasing all claims from the prior owner than something I cooked up myself.

Don't forget to play nice and be empathetic. Your worst case scenario now is that the occupier flushes a bag of concrete down the toilet or burns the place to the ground. Try not to set anyone off.

People do need time to move and my experience tells me people who are in foreclosure often crawl into mental shells of denial to protect themselves emotionally. You have now become the embodiment of the change in the their lives they have been dreading for months (probably years). Be cool. Treat the person decently and think about how you can solve their problem. You might want to offer to pay for a moving truck and 2 months of storage for their stuff as an opening salvo instead of cash for keys.... If you got possession in 30-45 days after the auction, that would not be a bad outcome as far as I am concerned.

The forums at foreclosureradar.com have a lot more foreclosure-specific advice.

Congratulations by the way! Hope it was a good deal.

Cash for keys works best, in my experience, when it is concurrent with an active eviction action. That way, if your CFK negotiations fall through or the occupant doesn't perform you haven't lost any days getting possession of the property.

I'm a DIY kind of gal, but I'm going to suggest that you don't do this one on your own. There are a lot of variables, including state and local law and whether or not the occupant is really the borrower or a bona fide tenant (or family member of the borrower). Foreclosure eviction law is specific and different from other evictions. You could easily mess up and cost yourself days and money at every turn. Call an eviction attorney in your area, and tell them you bought a property at trustee's sale. A good one will ask all the right questions and do all the proper paperwork.

In the meantime, you can work with the occupant if you choose, but I think you will find that they might not vacate easily and money isn't always the the main issue. The pressure of a sheriff lockout plus an offer of cash can sometimes motivate, but not always. That's why you've got to keep the eviction ball rolling. Get legal help tomorrow. Don't waste any days.

Just my opinions of course.

I just noticed you mentioned having the previous owner give up redemption rights. NM has a 9 month redemption period after a trustee's sale? Wow. Definitely get legal help drafting whatever document you use to get a previous owner to sign away such rights. I'm sure there is something binding, but you wouldn't want to use just any old standard cash for keys agreement. A good NM eviction attorney and/or an attorney who works for foreclosure investors has seen all this before. Definitely not DIY.

You mentioned that you have purchased REO properties before. Well, I suggest you talk with the listing agents that you purchased from to see if they would share the cash for keys paperwork that they use. That would make for a good starting point to creating your own cash for keys agreement template.

@Katharine Chartrand I am not well versed in this area of REI, but I can recommend a good attorney to you and I also know a couple of foreclosure auction investors I could put you in contact with. Send me a PM and I would be happy to help.

Thank you all. I have a good attorney who thinks the eviction in NM is no big deal.

I should have the deed by Friday, at which point I just hand it to a sheriff, sheriff locks her out. He does not feel notice is required in this situation in NM.

But I am going to double check on all the issues raised in this chain. Lawyers are great, but you do have to ask them the right questions. Thats where BiggerPockets serves me well.

NM has a 9 month redemption period, but it can be overridden by the mortgage and all mortgages reduce the redemption period to 1 month. One month is not a huge risk, but I'd like to get control of the property ASAP and get started.

So those are the legalities in NM. Get the Deed, Evict, House is Mine in 30 Days.

But I prefer to at least try to work with people. Cash for keys seems both strategic and reasonable.

Something doesn't seem right about a lawyer that says no notice is required. Is your lawyer familiar with evictions? The previous owner must be given a 3 day notice to quit in NM. If they don't quit, you proceed with an eviction case in the courts. A sheriff doesn't come and do a lock out until you have a court order.

Maybe speak with some other trustee sales investors and find how who they use for legal advice.

Various web sources say there is a 3 day notice required in the case of a new owner taking over a foreclosure.

Oddly, my lawyer disagrees that it is legally required in this case. Its not uncommon, in my experience for legal advice on the web to be incorrect.

I have a really good lawyer. If it mattered I would still get second opinion.

However, the point is moot because everyone agrees there is no reason on gods green earth not to give someone 3 days notice of eviction.

What I have learned since I first reported is that I don't get the deed as quickly as I expected. The NM process in this case follows Tom V.'s experience in California. Here's the process in NM per the Special Master Herself.

The Sale is not complete until the Judge confirms or approves the Sale. I will be submitting a Special Master’s Report of Sale to the Court and the Plaintiff’s attorney will submit an Order Approving Sale to the Judge for his review, approval and signature. Once that Order is signed and filed, I can release the Special Master’s Deed to you.

It’s hard to tell how long that takes. The process to get the documents to Court should be within the next week, but getting the Judge to sign the order may take a little longer. I would say within a month at the very latest.

I am curious if anyone having experience with this process getting derailed. What can go wrong here?

It sounds like (with court approval etc.) you are going through the judicial foreclosure process which is different from the Trust Deed auction I described for California (non-judicial foreclosure). I don't have any experience with that kind of process.

Your former owner probably doesn't have money to hire a lawyer, but what could derail or delay you would be if an ambulance-chasing lawyer tried to argue the foreclosure was improper for some reason. There is little you can do to control for this presently. Again, I would leave the occupant alone until you get your 'Special Master's Deed' in hand.

http://www.nolo.com/legal-encyclopedia/summary-new-mexicos-foreclosure-laws.html

In the best of all possible worlds after a foreclosure, the occupant is served a 3-day notice to quit and then leaves. It's even better when they take all their stuff with them. If they don't leave after the 3-day notice, you will be forced to take the tenant to court and file an unlawful detainer. This involves serving the summons on the tenant and the possibility that they will answer the complaint. Regardless, if they don't leave after 3-day notice, you are at least a month away from possessing the property. The legal action takes time and money which is why cash for keys is useful. Pay now or pay later, but by paying now you may gain access to property sooner and in a more peaceful manner.

I would be very concerned about an attorney that says you can evict an occupant without notice. A sheriff lockout does not happen without a court order.

I suggesting serving the 3-day and then making your CFKs offer. Hopefully that will be enough to motivate the occupant to vacate.

Congrats on your purchase. I've purchased one home at (Sheriff's) auction in which the property was still occupied. In that case, I went to the house to talk to the (now former) owner - no one was home - so I left a note and my contact details. We were open to renting the house back to them for a period if they wanted - trying to be cooperative. They in turn, contacted the Sheriff's office to confirm the sale and see how much time they had. Sheriff told them that was up to us. My partner actually got them on the phone - they seemed nice enough but didn't want to rent and agreed to be out in 7 days. We wanted to inspect the property right then, but the guy took advantage of my partner's good nature and we didn't. They got out in 3 days (house was empty) and were not returning my calls so after 6 days, so I broke in - leaving the them a message to that effect.

They had taken the light fixtures, bathroom sink and (didn't notice till later) swapped out the dishwasher for a rusted out one that wasn't hooked up and took the disposal. The guy then had the balls to ask for a few plants planted in the back yard and some crappy stone that was lining the garden that was his wife's grandmothers (we all know about landscaping stones as priceless family heirlooms!) - because of 'sentimental' reasons.The guy was using the extra time to clean out the fixtures. I've heard of other former owners trying to clear out the house before it was actually sold - taking out the HVAC - and having the sheriff stop them and make them return the items- in this case the lien holder (bank) got a call from a neighbor. In Indiana anyway, your rights are clear and immediate in the case of the former owner. I'm less clear if there is a renter in the property

So - my advice is to inspect the property ASAP - even if they are still living there. Tell them you need to inspect the property. I live in Indiana, so your laws maybe different. The sheriff's office here will go and make clear to the occupants that they must leave, and they will meet you at the property to facilitate in introductions if necessary.

Best of luck!

I'm with K. Marie Poe here. Katherine, why don't you look up the code for unlawful detainers pursuant to a judicial mortgage foreclosure in your state?

The only thing that could, in my little damaged brain logic, make sense that the attorney would be so confident to side-step the noticing, hence the civil rights of equitable (possessory) owners is because of a strong relationship (?) with the bench officer (judge).

I know I wouldn't want to be "home-boyed" by a local judge who hated real estate investors.

Originally posted by @Rick H. :
I'm with K. Marie Poe here. Katherine, why don't you look up the code for unlawful detainers pursuant to a judicial mortgage foreclosure in your state?

The only thing that could, in my little damaged brain logic, make sense that the attorney would be so confident to side-step the noticing, hence the civil rights of equitable (possessory) owners is because of a strong relationship (?) with the bench officer (judge).

I know I wouldn't want to be "home-boyed" by a local judge who hated real estate investors.

I was wondering the same thing. That maybe the attorney has connections and can get the sheriff's help with a lockout without a UD or a court order. No matter how wild west NM might be, the codes still require you to serve notices and you have to file a UD and get a court order if they don't vacate.

In the case of Indiana - The sheriff serves the occupants notices within the time allowed by law and they are to be out by the time of the sheriff's sale. So for us, it's very black and white. Did your sheriff do the same?

@Katharine Chartrand   Any update on your tenant situation?  Were you able to get them out quickly and cheaply, and did you use CFK?

Kristine Marie Poe 

Thank you for following up!  The situation is interesting.  

Per the advice on this chain, I avoided the property and the foreclosed owner until I had the special master deed in hand.  The judge has not signed the order even as of today, if the court's website is to be believed.

A local investment company called me yesterday (Friday) and told me that they had purchased the right of redemption from the foreclosed upon owner. He told me he had filed the petition of redemption a week ago. 

I can see the court documents online. The special masters report has not been filed, nor has the judges order confirming the sale. And there is no petition of redemption on the record.

I have a sneaking suspicion that the investor doesn't actually have the right of redemption, that he was just fishing to see if I had it. So I will go down there Sunday and introduce myself and find out if she believes she has sold her right of redemption.  If she hasn't, I'll just buy it then, and hopefully get a cash for keys agreement at the same time.

Any advice on how to play this would be very much appreciated.  If the investor bought the right of redemption but hasn't filed it, is there an maneuver available to me?  If there were some way to keep the property that would be cool.  

It's not the end of the world if I don't get it either.  But I could use advice on how to cover my posterior on the execution of the redemption.

>KNC<

@Katharine Chartrand  Hi Katharine,  Sorry to hear about your complications with the right of redemption 'investor.'  I am bumping this thread because it seems like an interesting case.  

I suppose (hope?) that you bought the house at a discount to the redemption value, so if someone wanted to exercise the right to redeem the debt you would get a little kicker payment and be done.  

Hope this is working out for you.  

@Tom V.    Thanks for bumping my post.  It is certainly a very interesting case to me.

I bought the house in a foreclosure auction on May 27th.  A week or two ago, an investor called me to say he had bought the right of redemption.  I did go talk to the foreclosed upon owner, who lives in the house.  She confirmed that she had sold her right of redemption.  

However, the investor hasn't filed the petition.  And the judge hasn't approved the sale. 

The law requires the person holding the right of redemption to pay me what I paid plus interest, but only from the time the judge approves the sale.   It's been six weeks when it usually takes two to approve the sale.  So I am out $160K with no interest while I wait for the judge to approve the sale.

I had assumed that the investor would call me to redeem once the judge approved the sale, but they should have filed their petition to redeem with the court and they haven't.  My realtor says that probably the "investor" wants to sell the house back to me because they generally don't have any money.   

So now I just wait...

  • for the judge to act
  • the 30 redemption clock to start ticking
  • the investor to call and either give me my money back or try to sell me the house

Or that's my best guess of how this works.  

My main question right now is whether the judge can take an unlimited amount of time to approve the sale.