What exactly is occupancy fraud and how serious is it?
Occupancy fraud can be tempting to those who stand to benefit from this all too common wrongdoing. The inquiries demonstrated by check boxes on most home loan applications are very direct. Be that as it may, on the off chance that one distorts the facts pertaining to their intent of primary residency in the home, it is a referred to in the home mortgage industry as "occupancy fraud." Occupancy fraud happens when a borrower says he or she wants to live in a home, at the same time knowing the property will be leased.
Often individuals change their minds and don't live in the property as they may have initially claimed. That is less serious than somebody deliberately misleading the mortgage lender by giving data showing they are going to occupy when they have no expectation to. Most loan specialists' advance records characterize owner occupancy as a time of no less than one year; however contract banks have adaptability in their guidelines. On the off chance that one plans to possess a home, yet move out inside under 12 months, they ought to advise the bank in writing and keep a duplicate of their letter.
A distortion of owner occupancy may appear like a little white lie...one that could spare you $100 to $200 or even more in interest expenses each and every month. The precise benefit relies on your credit sum and the interest rate differential between owner-occupied and non-owner-occupied financing, which is commonly under 1 percent.
The penalties and why you shouldn't do it
Without a doubt, one lie on a 1003 mortgage application is not liable to trigger an all-out misrepresentation examination, yet that does not imply that inhabitance extortion is a keen move. Or that you'll be safe from negative results in the event that you get caught. In fact, the lender could call your balance due and payable, increase your interest rate and installment, or foreclose on your property. While these may be unlikely to happen if you are making your installments, whatever does or doesn't happen will be solely at the lending institution's discretion and caution.
The loan specialist likewise could document a Suspicious Activity Report (SAR) into the government's Financial Crimes Enforcement Network (FinCEN), a concentrated database that money related organizations utilize to report conceivable cases of extortion to law enforcement authorities. Lenders today enlist specialists to review loan files, and they utilize that information to distinguish pockets of increased extortion activity.
For example, a late quarterly report by Interthinx, an advance danger examination firm in Agoura Hills, Calif., recognized four metros in South Florida, two in central California and one in each: Ohio, Pennsylvania, Michigan and Louisiana as having the most elevated measurable danger of occupancy fraud in the United States.
Mortgage Fraud Is A Federal Crime with Harsh Penalties
The Federal Bureau of Investigations handles mortgage fraud and contract extortion cases. Mortgage application fraud can get you a most extreme punishment of 30 years in government jail, up to $1,000,000 in fines, or a blend of these disciplines, as per the FBI. Misrepresenting pay, resources, obligation, identity, or the estimation of land to influence a mortgage lender's choice constitutes criminal action.
Candidates who lie on an application may be accused of one or more government criminal statutes. Financial and professional punishments apply when misrepresentation cases involve industry insiders. Notwithstanding restitution, industry experts, from specialists to notary publics, lose their licenses. Compensation involves money related repayment to the harmed party, or bank, notwithstanding any administration forced fines. Fiscal fines are particularly high for industry insiders.
A solitary federal mortgage fraud conviction can cost an insider as much as $1 million in fines. At the state level, fines range from a couple of thousand dollars for misdemeanors to $100,000 and up for felony convictions. The main thing for borrowers to remember is that the modest savings gained from occupancy fraud is not worth it, despite the general low risk of getting caught. Moreover, the penalties for getting caught far outweigh the benefit.
I guess I am just wondering who occupancy fraud really harms.
If I understand correctly, the lenders feel like they are taking a greater risk and missing out on additional fees they would have normally charged you for an investment property? Is anyone else really affected?
Why are investment properties seen as a greater risk anyway?
Thanks for you comments, Jenna; knowing you read our blog is very much appreciated!
An investment property is considered higher risk, I'd think, because if an owner is ever in a position of financial stress, the investment property will suffer before the primary residence. Whether it is needed repairs or maintenance (the home is the collateral), or actually making that mortgage payment on time, the roof over the heads of the owner's family will be more important. I don't believe it's greed on the part of the lenders, but more about mitigating calculated risk. Does that make more sense?
As a mortgage broker, I have not been involved with creating the guidelines, but do my best to be aware and to communicate to my clients. Sometimes, though, the guidelines may not seem logical, and in those cases I must work within those guidelines anyway.