Seeking Advice: Potential Loan Occupancy Breach Due To Sale

6 Replies

Hi BP Community,

My friend is running into what I see as legal issues. The situation is as follows:

She purchased a property as a primary residence and took out a conventional 30 year loan for mortgage on it. There's a clause on the loan for 60 day move in and 1 year occupancy. She proceeded to list the property for sale within the week of closing on the house, and accepted a buyer right away. Now she's running into the issue of what I see as potential mortgage fraud. The buyer also seems to be going through with the purchase and their agreement doesn't have anything stated for the seller to back out. Is there anything she can do for this? All I could recommend was for her to hire an attorney because this might get messy. Maybe she could potentially breach the purchasing contract and pay a fee to the buyer and the buyer's agent?

Thanks for any tips/insights you guys may have!

John

@John Kamble Are you are saying she signed the mortgage never intending to live in the house? Or did something happen after closing that changed her situation? Her intentions at the time of closing had to be that she was going to comply with the terms of the mortgage. Life happens though. I live in a military area and the military changes service members plans often. They are not stuck leaving recently purchased property sit empty just because their mortgage included a clause requiring residency. My non-military son had something similar happen. He bought a townhome last year and in the middle of fixing it up his job relocated him for 6 months to a different state. The mortgage company does not require people suffer financial hardship because their situation changes. Without knowing your friend’s 1) intentions and 2) situation no one can offer reliable advice.

I assume it was her intent to commit mortgage fraud the whole time? I mean I assume she’s selling at more than 10% above what she paid a week earlier to cover selling costs and make a profit. If she’s losing money in the deal and has a real excuse, plead it to the bank. If she was lying in the application (sh obviously didn’t accidentally list it a week later, heck most people move in within a week.) hopefully it was her first purchase ever and she can plead ignorance and say she didn’t know what she was doing when she signed documents with full pages that specifically said she’d move in and occupy. 

The bank has costs they are trying to recoup before making a profit from the interest. At least call teh loan officer, don’t stone wall them. Hopefully the new buyers appraisal comes in at what she paid and she can sell at a loss or cancel the sale. 

Unlike buyers who can cancel and forfeit their escrow deposit (or not, if exercising a contingency), the seller doesn't have the right to back out.  If she does, she is at risk of being legally forced to close and/or financial damages.  Back to the mortgage clause, it may not mean what you think it does.  Lenders and insurers do not like for properties to be unoccupied for any length of time; the risk of damage, break-in, more is too great.  The one year of occupancy may be in terms of renting it - not selling it.  She claimed it as her primary residence so the lender expects her to live there.  I don't understand where the requirement that she not sale is applicable.  

There's more to this story...and I can live without it.  Again, the lender doesn't dictate ownership time but the can hold the borrower to their word on how the property is to be used.

Geez...

Would the mortgage company know whether or not you can sell? I believe she received a payoff quote on the loan requested through the title company. If so, does that indicate the mortgage company doesn't have any issues with a sale proceeding?

I am a former wealth banker and I've also been in the private mortgage sector. There's a complete lack of knowledge here.  The lender is restricting how the property can be occupied - or used.  They could care less if it is sold.  The mortgage has a Due on Sale Clause that states when you sell it, you must pay-off the mortgage.  The title company got the pay-off from the lender (mortgage company).  All is good...

So here's mortgage lending 101:  the lender has already made their money on this deal. All the fees, closing costs - they got paid upfront.  The loan then gets packaged with others and sold in bulk to investors.  The investor gets the interest rate and pays a fee to a servicing company to do the whole escrow bit and servicing.

Bottom line:  Sell away

If your friend doesn't sell it, she's got to move  in within 60 days and live in it for a year before she can rent it.