How do banks verify owner occupancy?

30 Replies

I'm curious what the experiences other investors have had when it comes to banks verifying owner occupancy.  I have a friend who said that they never checked but I'm curious if anyone has had any experience (good and bad) in finding out.  Super, super curious.    

Welcome to BP Victor!

Very strange first question! 

It's not just banks that check Victor. There are initial red flags, insurance company, utilities, credit reports, tax billings, other related public filings, name/address search. 

But it's loan audits that can turn up cheaters, lying about occupancy, these are done by private compliance auditors hired by the bank, then you have regulators who audit and loan servicers.

Audits are done in the early stage of the loan, after closing. There could be several audits as loans are sold and securitized in the process. After that, loans are audited on a random basis or again if other questions arise, like that name popping up on title closing lists for other properties. 

Regulators, such as FDIC, Comptroller, CUNA, State Bank Examiners, all do audits. These government agencies have police powers at the state and federal level. As a past bank examiner for FDIC, I could tell you how cheaters are caught, but then I'd have to kill everyone on BP, that wouldn't be nice at all. LOL I guess there are "secrets" in real estate.

Maybe if you use a smart phone, it will tell you where you spend most of your time......if the feds are looking at you, they will find out. 

That's about all the public needs to know.

Now, Goggle "Bank fraud" and "Mortgagor Fraud" and read what you find. 

Lying on a mortgage application is bank fraud or depending on the lender and type of loan, mortgage fraud and can be securities fraud. 

Penalties can be up to a fine of $100,000 and/or 10 years in a federal prison. That is usually reserved for the criminal types, intentionally deceiving to obtain financing. You buy a place and move out in the 3rd month, they will most likely call your loan due. But you're also on the radar, if there is a pattern of violations, you can get the grand prize. 

Part of the fun with FDIC was investigations. I could simply go someplace and inquire about anything, look up "pretexting investigations" I might play like a customer, or act like a out of town relative, or a guy from the school board, whatever mask I thought might get me "in". I was very good at it too, BTW. If we look, we will find.

Your occupancy requirement generally falls off after 12 months, it may also be waived if circumstances beyond your control should arise. It's not as if you are chained to the property either, you can have a life but that better be your residence in the first year. 

Lastly, a borrower will never know when or if they are audited, they also won't be notified until it is completed. At that point the evidence will be had. So, folks here can't really tell you much, unless they are willing to admit being caught. You might also just get lucky, just keep in mind the penalties and ask yourself if it's worth it. 

Your question was much like asking a cop where he likes to sit to catch speeders, pretty obvious. Good luck :)    

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I really appreciate the input Bill. I had no idea the banks put so much effort into looking into these matters. 

Originally posted by @Victor Quan :

I'm curious what the experiences other investors have had when it comes to banks verifying owner occupancy.  I have a friend who said that they never checked but I'm curious if anyone has had any experience (good and bad) in finding out.  Super, super curious.    

The first thing I would do is change your driver's license and official mailing address for the mortgage payment to the property. I would also turn all of the utilities on in your name. I would make sure that your vehicles are registered to that address as well. 

I would also add that I would not rent out that property, unless it is a multi-family, then you could rent out the other units, but not your primary residence unit. Oh and be sure to use that property as your primary residence on your taxes.

Now as far as where you actually lay your head at night, there is nothing in the law that says you have to sleep in your primary residence every night. In fact many well to do people have 2 homes and spend time at both. I also believe that you can rent rooms out as well. 

@Bill Gulley has the right answer. Don't do it. I used to help underwrite loans at a wholesaler and the ways they look for OO as opposed to NOO are myriad. And if my nose starts to twitch that something smells wrong, I will hunt and search until I know for certain. Title company searches by your name, looking for any property you have purchased ever. Calls to utility companies and cable providers. Look up the registration on your car.

And on and on. When you filled out the loan app you basically gave up all rights to privacy.

And if you do manage to convince me or another underwriter that all is well, expect that because of the level of scrutiny you were put under, months later somebody from QC will check into it again. And if they figure out you did a bad thing, it will go south for you quickly. Best case scenario they call the loan due so you need to be able to pay cash right then. If you can't and the lender suffers a loss (or even worse FHA or Fannie etc does) then you are looking at fines and or prison time. Don't ever think "it won't happen to me". I know a bunch of appraisers and LO's that thought the same thing. Most of them are out now but.........

Originally posted by @Anthony Gayden :
Originally posted by @Victor Quan:

I'm curious what the experiences other investors have had when it comes to banks verifying owner occupancy.  I have a friend who said that they never checked but I'm curious if anyone has had any experience (good and bad) in finding out.  Super, super curious.    

The first thing I would do is change your driver's license and official mailing address for the mortgage payment to the property. I would also turn all of the utilities on in your name. I would make sure that your vehicles are registered to that address as well. 

I would also add that I would not rent out that property, unless it is a multi-family, then you could rent out the other units, but not your primary residence unit. Oh and be sure to use that property as your primary residence on your taxes.

Now as far as where you actually lay your head at night, there is nothing in the law that says you have to sleep in your primary residence every night. In fact many well to do people have 2 homes and spend time at both. I also believe that you can rent rooms out as well. 

Actually, there is, more than 6 months of the year. Otherwise, you'll have explaining to do.....I'm working the oil fields in AK for 6 months, I'm in Europe traveling, I'm having to stay with my sick Aunt in Cleveland and your story needs to check out. As I said, there are honest ways to address special "real" circumstances.

There is a pretty simple way to see if those registered cars are at that residence too, even an old car. 

Think all the neighbors are going to lie for you? It's just a phone call, but it can be a knock at the door.   They won't!

Prisons are full of smart people, just not that smart, first mistake is thinking you can evade and mislead. When you mess with GSE or insured institutions, you're messing with the feds! :)

dang i didnt know it was that serious!

Originally posted by @Jacob Tucker :

dang i didnt know it was that serious!

 Mortgage and bank fraud are the leading "white collar" crimes in the U.S.

As I have mentioned before, size and scope of violations matters, but there really isn't a small case of fraud, it either is or it's not. Bank fraud is the easiest to prove, show and prosecute, no loss needs to be suffered by a bank, only the fact that they were given false information in a loan application needs to be shown. Yes, it can be serious.  :) 

Originally posted by @Bill Gulley :

Actually, there is, more than 6 months of the year. Otherwise, you'll have explaining to do.....I'm working the oil fields in AK for 6 months, I'm in Europe traveling, I'm having to stay with my sick Aunt in Cleveland and your story needs to check out. As I said, there are honest ways to address special "real" circumstances.

There is a pretty simple way to see if those registered cars are at that residence too, even an old car. 

Think all the neighbors are going to lie for you? It's just a phone call, but it can be a knock at the door.   They won't!

Prisons are full of smart people, just not that smart, first mistake is thinking you can evade and mislead. When you mess with GSE or insured institutions, you're messing with the feds! :)

 I'm not buying it. I really don't think banks are driving around peeping in windows and talking to neighbors. It's a nice scare tactic, and I don't condone being dishonest, but it sounds like a bunch of crap to me. 

Show me an example of someone who did all the things I said, but spent more than 6 months at a second home who was convicted of mortgage fraud. If you can show me that, I will change my opinion.

@Anthony Gayden

Do you know what an "unknown, unknown" is?

There is no peeping in windows. There certainly are compliance reviews. Regulators don't need to peep in your window to make discoveries. Audits and reviews are done everyday.

Would you mind pointing out any motivation I could possibly have in "scaring" anyone, other than just giving them information that keeps them out of trouble by following bad advice from those who don't have a clue? It's no skin off my nose if someone gets fined or jailed or loses their investment, now is it? I'm not getting paid for letting others know about audits and reviews, now am I? (No to both of those).

I'd have to say too, that suggesting how to cheat is the dishonest thing to do, seems you can't condone your own post.

Let me see now, I was a bank examiner, I did track down loan violations, I did show up on a premises to investigate matters, I did file reports of findings, I did have loans reclassified and called due......and, what have you done? I also serviced loans, doing much of the same thing, again, your lending experience is what? I think my experience here is well known, as well as my motivations, your's however seem to be in question. 

I don't post to scare, I post to inform. There are plenty of investors out there who are intelligent, prudent, law abiding and who want to profit ethically, but there will always be others. If everyone agreed with me, I'd think it would be a very strange day!   

   

I've learned so much from the dialogue that has happened here.  Seriously, thank you all for your input.  

When I worked for a mortgage service most of the time people would just tell us without knowledge of the penalties or insurance policy changes necessary. It didn't require anything more than contacting references, which usually starts as soon as the grace period does.

@bill 

@Bill Gulley  were u in investigator for a large bank or a smaller one? 

Originally posted by @Yousef Reda :

@bill 

@Bill Gulley were u in investigator for a large bank or a smaller one? 

Past bank examiner for FDIC, it's in my profile page. :)

So what it its a cash purchase from a commercial bank not government and not financing is involved?

@Charles Borrelli - I would think that if no banks are holding a mortgage on the property, then no one will care what you do with the property. The issues here are related to the bank holding a mortgage on a property that is being utilized for a purpose other than what was agreed to in the mortgage contract.

Thanks for the response. Often I see banks like Wells Fargo selling foreclosed property with an owner occupant period. I know that often investors buy these posed as owner occupants ( I have seen it happen while I was waiting for the open for investors period many times) I can't imagine why the bank cares who buys it.

Originally posted by @Charles Borrelli :

Thanks for the response. Often I see banks like Wells Fargo selling foreclosed property with an owner occupant period. I know that often investors buy these posed as owner occupants ( I have seen it happen while I was waiting for the open for investors period many times) I can't imagine why the bank cares who buys it.

 You are correct in waiting for the investor bidding period to open.  Even if you purchase with cash, there are still penalties for lying about occupancy on these types of sales.  They are trying to promote home ownership by offering these properties to owner occupants first.  It can help stabilize neighborhoods that have lots of foreclosures when people buy the homes, live in them, and take care of them.  A regular sale (not a foreclosure) purchased with cash will not have these restrictions.

Originally posted by @Bill Gulley :
Originally posted by @Yousef Reda:

@bill 

@Bill Gulley were u in investigator for a large bank or a smaller one? 

Past bank examiner for FDIC, it's in my profile page. :)

 Were you also an AUSA or FBI agent? How many grand juries did you impanel or testify in front of to get the guy who decided he didn’t like his fha financed home’s neighborhood and decided to shack up with his old lady two counties over? 

How come the legal eagle Feds can’t catch Bernie Madoff and miss a million fake accounts at Wells Fargo when they can set up surveillance on my wife’s cousin who’s taking care of my house for me while i’m in Iraq? :-) .

@Charles Borrelli @Stephanie Irto is correct, don't try it. As an investor I purchase the Owner Occupant properties as a way to get an advantage on a property before it gets to the investor pool of buyers. I actually do move into the properties since I wouldn't commit a felony for a 1% lower mortgage rate and a $30-$40k discount on a property. Since my latest acquisition was 3 miles away from my previous primary residence, I was asked by the selling agent representing Bank of America, and grilled a few times by the underwriter at Wells Fargo who I got the home loan from about making sure I was going to use this as my primary residence, I had to sign affidavits for both banks stating it was going to be my primary residence. Interesting incident happened a little over a month after living in the property, a woman knocked on the door saying she was going to rent a property in the area and wanted to ask me a few questions about the area, she asked how long had I lived in the home, was I renting or was I the homeowner, if I liked the area, and my name, I closed the door and looked out the window and noticed she got into her car parked one house over and drove away, I have a feeling someone may have called that Hotline to report possible fraud. I've purchased 4 REO's this way so I don't blame them for being suspicious.

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What felony would one be committing or what penalties could anyone impose for posing as an owner occupant where no mortgage financing is used and it is a cash purchase from a bank? I suppose the bank could sue you later but I cant imagine they would waste legal resources to collect nothing I am not talking about hud or Fannie or fred or any other government agency here. I cant imagine that Wells Fargo aka (Scumbags R US) cares anything about promoting home ownership

Originally posted by @Charles Borrelli :

What felony would one be committing or what penalties could anyone impose for posing as an owner occupant where no mortgage financing is used and it is a cash purchase from a bank? I suppose the bank could sue you later but I cant imagine they would waste legal resources to collect nothing I am not talking about hud or Fannie or fred or any other government agency here. I cant imagine that Wells Fargo aka (Scumbags R US) cares anything about promoting home ownership

Charles, I believe Ray mentioned Affidavits that he needed to sign in order to purchase the REO for cash. In the scenario in question, the felony would be perjury in relation to the Affidavit.

This is a pretty great thread, glad I stumbled upon it.

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