Is 'cash for keys' a good idea for renters?

For tenants, the upswing in the real-estate market may not necessarily be a good thing. Investors may be quicker to swoop in and buy flailing properties in some areas, but many are just as quick to demand that tenants get out.

Investors want to fix up the building. They want to sell the building. Banks, for whatever reason, believe that the property must be empty to attract buyers. With delinquent mortgages ticking, speed is of the essence.

The shell-shocked tenant, who may have months left on his lease, barely has time to come up for air before a bank or real-estate agent — or what these days is called an "eviction agent" — arrives with claims of a generous offer: The more quickly you leave, the more I'll pay you.

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The practice is often called "cash for keys," but it's far from a formal program. By contrast, it comes with no rules or financial guidelines.

(Renters: Have you had to make tough choices to pay the rent? Please tell us your stories by emailing msnrealestate@live.com.)

In the first quarter, homes in foreclosure accounted for 26% of all home sales nationwide, according to RealtyTrac, a real-estate data firm. According to estimates, renters occupy 40% of all residential foreclosure properties. So the cash-for-keys practice may be no small game.

"Some agents are extremely aggressive about it," says Dean Preston, executive director of Tenants Together, a California nonprofit that has negotiated or learned the details of thousands of cash-for-keys deals. "It's always presented as if the tenant has no rights but the owner has this wonderful program that they can offer them called 'cash for keys.' That's the carrot."

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The legality of tenants remaining in a property may be quite clear, thanks to the 2009 Protecting Tenants at Foreclosure Act, a federal law. But even some fair-minded investors don't think it's their duty to inform tenants of the law; it's on tenants to learn their own rights.

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So here's the big one: In every town and in every state, tenants have the right to stay in a foreclosed property for the duration of their lease or at least 90 days, whichever is longer. The only exception is if the new owner plans to live in the unit, in which case the tenant still has 90 days. In some states and cities, a foreclosure still isn't just cause for eviction, and the lease stands regardless.

Read:  If your landlord is facing foreclosure, stay put

Still, "the level of misinformation and deception that we hear of on a daily basis from real-estate agents dealing with tenants after foreclosure is stunning," Preston says.

His advice to renters: Refuse to talk to anyone, except to say: "I don't want to discuss my tenancy with you. Put it in writing." Unscrupulous agents may make false claims orally — the lease is invalid, or you need to vacate in 14 days — but they probably won't do so in writing because it would break the law.

If you do take a deal, get that in writing, too, and make sure that the bank has signed your copy. Be sure the document makes clear that any cash-for-keys offer is in addition to the security deposit you are owed.

That said, there are decent cash-for-keys deals to be had, as well as some fair-minded investors who do want to do right by tenants. But it's still a free-wheeling negotiation, and no one wins at the bargaining table without knowing what their chips are worth to the other guy.

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How to gauge your hand
Eviction agents will start low and often have a lot of room to raise their bid. At a minimum, you don't want to accept an amount that's less than what it will cost you to move. This includes moving costs and the first month's rent and security deposit. Preston's suggestion is to demand half the cash immediately and the rest when the keys are turned in, for your protection and use.

From there, you can negotiate a higher price based on these factors:

• How badly does the new owner — typically the bank — want the tenants out? If the property is attractive to buyers, the itch could be strong to empty units fast, whatever the cost. If that's the case, don't let the owner see your suitcases by the door -- and aim high.
• How much time is left on your lease? "The longer the terms of your lease, the more they're going to have to pay to get rid of you," says Alison Brennan, a former tenant advocate who started the blog Tenants and Foreclosure in response to foreclosures' impact on California renters. "If you only have 90 days, they will probably offer you $3,500 to $4,000 to leave early. If you have eight months or a year, they're going to have to at least double that to get you to leave."
• How much rent are you paying? This can be a fair gauge of not only what you'll require for a new unit but also what the building is worth in resale. The higher the price, the more your exit may fetch. "Tenants can do quite well at it if they know how to negotiate and if they're willing to be patient," Brennan says. In rare cases, with nice properties, she says she has seen a low-five-figure settlement. More often, she sees deals between $3,500 and $5,000.

'They claimed foreclosure, so I didn't pay rent'
A reader asks if he can be kicked out for nonpayment of rent when the property was under foreclosure.

The reader had stopped paying rent upon receiving a letter from the county of pending foreclosure negotiations. More than three months passed. Then came an eviction notice.

It turns out the owner took on a partner instead of giving up the building, and had no intent of clearing the building.

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"He never clarified his intentions" to keep the property, our reader writes. "If he had, we would have paid rent. What can we do?"

A few issues come into play here, the most important of which is this: You must pay the rent.

It doesn't matter if you saw demolition crews surveying the property and the owner boarding a plane for Fiji. If the rent is due, and you don't want a giant "eviction" stamp on your record, you are required by law to pay it — even if it means noting your futile efforts to find the owner and parking the money in a separate, dedicated bank account.

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"If you're predicting a foreclosure and you're withholding rent — preparing for moving costs, for example — you're rolling a big pair of fuzzy dice," says Steven R. Kellman, a lawyer and founder of the Tenants Legal Center of San Diego. "You may get an eviction for not paying rent. In other words, you may have made a bad bet."

One critical thing to know is that a property may be "under foreclosure" yet never be foreclosed upon.  An owner may merely want to refinance, and for bizarre, technical reasons, the lender must file foreclosure proceedings first.

"Some owners might go into default fully intending to fix the problem," Kellman says. "But the poor tenant doesn't know it."

In other cases, short sales or loan modifications prevent foreclosures. If you haven't paid, "an unscrupulous owner can still evict you," Kellman says.

So what do you do? Pay the rent, somewhere. Identify the owner on the lease and via county property records. Then call and ask to whom you should pay the rent. Mail checks with a letter stating that you are paying rent as stipulated by the lease. Save copies.

If it's really unclear whom to pay, deposit money in a separate, designated account, and write letters documenting this.

"Most judges in most jurisdictions would accept that as a good-faith attempt to pay the rent," Kellman says.