When the housing market crashed in 2007, banks suddenly found themselves with an unmanageable inventory of foreclosed homes. Lacking the ability or means to deal with the duties and problems associated with foreclosed properties, namely emptying the home of occupants and maintaining its condition, banks quickly developed a program that became known as "cash for keys."
Now, as home foreclosure continues in Tennessee and throughout the country, the cash for keys program will likely become a standard procedure in federal bankruptcy law. Currently, approximately 4.8 million Americans are more than 90 days behind in their mortgage payments, many of which may enter foreclosure in the relatively near future.
Under the proposed federal cash for keys program, struggling homeowners may be eligible for "up to $1,000 to seek independent financial advice and up to $20,000 in cash as a 'fresh start' payment towards living costs in a new home." The rationale behind the program is two-fold: not only does it purportedly motivate homeowners to leave their homes quickly and in good physical condition, but it lessens the burden on banks to repair or renovate homes prior to placing them back on the market.
The federal proposal asks five of the largest mortgage lenders in the U.S. to participate in the program, and to hand out the $21,000 grants to foreclosed homeowners.
Many critics of the program say that the government shouldn't be rewarding people who made bad decisions that led to the foreclosure of their home. Advocates are quick to point out that homeowners are not always to blame for their home's foreclosure, as in the cases of mortgage lenders' poor underwriting criteria, mortgage scams, and the robo-signing foreclosure scandal, which are believed to be responsible for millions of foreclosures.
Source: San Francisco Chronicle, "Can't pay the mortgage? Maybe the bank will pay you to leave", Anna Marie Hibble, 3 May 2011
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