Investor Buying As "Primary Residence"
Can someone tell me where to find the legal reprocussions of buying RE with the intent of renting, while checking the Primary residence box on the loan application?
My bro is buying rentals this way, and says he is not at risk, I wanted to look up what he stands to loose? What would they do? Call note? jail time?
thanks
The bank can't do squat.
What your "bro" is doing is a common practice, as well it should be.
Banks charging additional points on loans to OU buyers is crap. It's just another way to make more and more money. It's unethical, but then again lenders are morally bankrupt.
As for your original concern, don't worry. There are no mortgage police. I've never heard of a loan officer hiding in the bushes, following an investor to see if he/she will actually live in the property. It just doesn't happen. Even if they doubt you, the underwriter simply asks for a letter of intent, something saying why you plan on moving to the property. Then, once you close, you're forgotten.
Good luck.
[addsig]
it has absolutely nothing to do with the banks "making more money" There is Inherently more risk lending on a property the owner is not living in versus one they are living in. In times where money is short, are you more willing to pay your mortgage on a rental property you don't occupy, or your house? When push comes to shove, which will you default on first? Its a simple answer. The default rate is higher on NOO than OO, plain and simple. Loans with higher default rates deserve higher interest rates to compensate the lender when somebody defaults.
Yes, you can get into trouble by essentially "lying" on a loan application. The "bank" can call the note due. Even mortgage brokers have done jail time and paid stiff fines for overstating "stated" income. If you don't believe it, go to the next tradeshow in your state for mortgage brokers. It's called fraud, and the state has regulations against it, and the FBI can be involved as well.
p.s. lenders have done mailing address investigations, and gone as far as knocking on a door to verify occupancy.
Quote:
On 2004-06-23 17:20, kdxhx wrote:
Yes, you can get into trouble by essentially "lying" on a loan application. The "bank" can call the note due. Even mortgage brokers have done jail time and paid stiff fines for overstating "stated" income. If you don't believe it, go to the next tradeshow in your state for mortgage brokers. It's called fraud, and the state has regulations against it, and the FBI can be involved as well.
they also check up on the type of insurance also. Making sure its an OO policy.
When you sign papers at the closing, you do sign an owner-occupancy disclosure that states what the bank can do if you do not occupy the property they finance. It ranges from calling the loan to paying fees and interest rate that is prevailing on NOO products if the property becomes NOO within first year.
It's called credit fraud if you are purposefully doing it.
IF you fully intend to occupy a property as your primary residence, then that's just fine with no consequenses.
If they bust you w/ 5 OO loan, then you're in deep do do, as they can prob. prove you didn't have the intent.
NOTENOUGHDOUGH,
Glad to meet you.
So you have a better understanding what can happen check out Number 11 this should answer your question.
http://www.hud.gov/offices/hsg/sfh/buying/loanfraud.cfm
John $Cash$ Locke
NOTENOUGHDOUGH,
Just as an after thought, with the advent of the computer age, all Uncle has to do is type in, Name, OO and push enter.
Another thing on an open board do not mention what anyone you know is doing if you have a doubt about it's legality, just ask what can happen. I was thinking I hope your brother doesn't live in the same city you live in, maybe more than investors check this board.
Naw, you are probably right who would be checking this site looking for fraudulent deals.
John $Cash$ Locke
Thank you for all your comments
It is a Federal offesive to lie on a credit application with a financial institutions. I know of two parties that we caught and prosecuted. It's simple, it's wrong. Many people do it and most get away with it, but it is still wrong.
[addsig]
Here's a link of interest:
http://www.mortgage-mart.com/gaps.html
You were asking about penalty:
federal law provides for those convicted of loan fraud to receive a possible 30-year sentence and up to $1 million in fines!
:-o
I've seen many brokers do this and if the payments are made on time I never hear anyone complain. Get behind on the payments and the story changes. Tell your brother to keep up on those payments.
Maxwellpropertyinvestment. I'm sorry that you have that attitude. One of the two investors that I know that got caught actually had a Freddie Mac auditor walk up to the door and ask for him. When the lady said that he didn't live there, that he was their landlord, and that they were renting, the legal troubles began. The fact that you don't get caught doesn't make it legal or right, it just means that you were lucky.
[addsig]
Is breaking the law and possibly going to jail and paying a ton in fines worth a single point? If you have a friend who is a mortgage broker (or a broker) he probably will give you a good deal on the rate and might even waive the origination fee... If he would do that, that would pay the difference between OO and NOO. Is it really worh the 2,3,4, or 5000 that you might save?
Just my 2 cents.
Also, I completely agree with an earlier post that NOO are far more risky than OO. That is the way the banks make up for the increase in defaults which happen...
Generally, how long do you have to live in the residence to satisfy the residency requirement? 1 year, 5 years?
Suppose you buy a 2 unit zoned R-2 with the "intent" to deconvert to a single family and then for some reason, you don't do it ?
[addsig]
There is a big difference between having the Intent to reside there and just saying you have the intent to reside there.
If you've been renting, are going to buy, close on a home near your work, schools, and church, and suddenly get a job transfer......you may just change your mind. In many cases you could document why you had the intent to live there and then why it changed.
It is illegal, immoral, and unethical to say you have the intent to live someplace when in reality you do not.
It is not uncommon, when a home is being foreclosed on, for an officer of the bank to knock on other doors of homes in the area and verify this kind of information. They can call the loan due in most cases.
Let's be greatful that "the honor system" still exists in somewhere in this country. By abusing it, the government, lenders, or cities will step in an and begin regulating it. Is that what you (or your brother) wants???