What is the difference between a deed in lieu and cash for keys?

10 Replies

Thanks in advance for your feedback!

Jim

Cash for keys is a strategy which can be employed with a DIL deal.  You are essentially providing some motivation for the borrower to sign the DIL docs and leave the property in a timely manner and in good condition and send/leave you the keys.  Most of my DILs have not included a cash for keys element, but it can be helpful in some situations.

deed in lieu is for the lender to take back the property without foreclosure,they may offer cash for keys. cash for keys is for the new owner to remove a holdover tenant (could be former owner,family member) you pay them cash after they vacate property 

Cash for keys can also be used to describe getting a tenant or rent to won buyer out of a house. Its an investor or manager or owner saying "please just leave the house and I will pay you a little cash for your trouble".

Deed in lieu is them signing the deed back over to you so you don't have to go through all the legal steps of foreclosing.

Cash for keys generally relates to an eviction of a tenant, paying them to leave.

A deed in lieu is from a borrower from a mortgage default, very different matter. A private/ hard money lender might pay them to move on and give them a quit claim deed, but I wouldn't suggest it. My reasoning is that a lender should not entice a borrower to abandon equity, the deed needs to be made with or at the borrower's free act and deed, their decision and at their request, not as a demand from a lender. The borrower avoids personal liability for deficiencies or amounts remaining due from any sale of the collateral which should be enough of an incentive, I've taken deeds in lieu and never paid them. :)  

Thank you all for your comments.  

Oftentimes in reading here, or in listening to various podcasts, I see statements indicating these could be 2 separate exit strategies for the buyer of an NPN. It seems they're more inter-related than separate.

Not inter-related. For example as a landlord, instead of the costly and timely eviction process through the court, you may offer cash to the tenants to move out.

For the record, neither Cash For Keys or Deed In Lieu of Foreclosure is an "exit strategy" as both things leave the investor still invested.  An "exit" is when an investor is no longer invested in the asset.  Those do not accomplish that.  They can be steps toward exiting but not exits in and of themselves. 

They are intertwined in casual conversation but they are two different things which can apply to different and/or similar parties.  For instance, a DIL can be obtained from a Borrower who has a tenant in the property.  To speed up gaining possession of the property CFK can be used with said tenant.  Adversely, a Borrower can request cash to help move out as a part of the DIL agreement.  

In case the point was too subtle in Bill's post, Deed in Lieu of Foreclosure does not mean that the mortgage will not be foreclosed.  Many times a foreclosure will still take place.  It means the Borrower will not be liable for amounts due but not recovered from the property by the Mortgagee.  So just because a Borrower gave a DIL does not mean they will not see a foreclosure on their credit nor does it mean the legal process of foreclosure will not take place.  Just means they have no further liability to the outcome.

Thanks, @Dion DePaoli    I'd love clarity as to why, or in what instance, a mortgagee would still want to pursue foreclosure with a DIL in hand. 

a foreclosure will often clean up the title allowing the mortgage holder to sell it more easily. A DIL does not resolve any other liens. Individuals who are being foreclosed on may have other legal problems which can fowl up the title. 

Can the lender do a "soft foreclosure" where they foreclose after a DIL just to clear title but without impacting the borrower's record? If not, how does the lender know, with certainty, they they are not just inheriting new liens on the property with a DIL?

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