Lenders Paying for Untrashed Foreclosures

Some people are getting a lift from their foreclosures -- by lifting items from the houses before they leave.

And lenders are offering cash to stop that from happening.

Not long ago, on a brisk day in a middle class neighborhood in Nashua, N.H., Thomas Popik was looking at homes with a local realtor.

One struck him as particularly memorable.

The frigid air hit him when he walked in the door. Downstairs, something was obviously missing.

"It's going to be hard to sell a home without a furnace," says Popik, a research principal at Geosegment Systems, a banking data company.

This was not a mix-up by the home builder -- the previous homeowner stripped the furnace after foreclosure.

Popik's experience is not unique: Neighborhoods across the U.S. are being ransacked.

In fact, about 50% of homes have substantial damage following foreclosure, according to a survey of 1,500 real estate agents by Campbell Communications in Washington, D.C. (This is not just due to homeowners looting their foreclosing properties; some do not have the financial capabilities for the home's upkeep, and other times vandals are responsible.)

To keep real estate agents from being left to sell homes with floor and carpet damages, holes in the wall, and removed appliances, a preventive measure is being offered to homeowners facing foreclosure known as "cash for keys."

Cash for keys is a twist on a security deposit: This money is offered as an enticement to ensure that the home won't be stripped of valued items or damaged.

In other words, it gives evicted homeowners incentive to leave the house in good condition.

That's important nowadays, because the housing downturn is making foreclosure even worse than before. As people try to sell their home before foreclosure, many are discovering their house is worth less than their outstanding mortgage balances.

Lenders see cash for keys as a small price to pay when compared with the cost of repairs. Indeed, the price impact when people damage their houses can be up to 25% of what the home is worth, according to Campbell Communications. (That means a $400,000 home's repairs might cost around $100,000.)

The incentive appears to be necessary: In March, one out of 538 homes is in some stage of foreclosure, according to Realty Trac.

What these homes may look like is anyone's guess. Steele V. Propp, a foreclosure specialist and loss mitigator in Minneapolis, says he's finding there's a one in 10 chance that you'll come across a home in really good condition.

In Minnesota, where the cash for keys payout is anywhere from $500 to $1,000, a written agreement is made in exchange for the check so that property is left in "broom clean" condition. In some places, the offer is as much as $3,000.

How many people are biting?

It depends. Cash for keys is not always considered a bargain by homeowners. Losing their home and credit is a heavy burden.

"Most people don't want cash for keys," says the researcher Popik. "They want their credit ratings to stay intact."