Mortgage Occupancy Fraud for not being home?

New to Real Estate · 90034 · Member since 2019 · 14 posts · 1 vote

Hi all, was hoping to get some clarification because i can't seem to find info anywhere about my specific issue. I have a mortgage that requires one of my units to be my primary residence. I work far across town, and honestly just like the neighborhood of my old apartment better. So I've kept my old apartment as part office / crash space and stay there the majority of the time still. I might rent out the extra room in my primary residence, and keep my room with some of my stuff for when i come and go. is there any reason i should be worried about mortgage fraud?

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JD MartinBusiness Member

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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

Quote from @Brooke Villanyi:

As long as you maintain that house as your primary residence, no. That means your driver's license address should be at that house. That's where you should vote. That's where you should get your mail. That's where you should register your car. If you do all of that, there's no law that says you can't sleep anywhere you want 7 nights a week. You could stay at your friend's house. You could stay at your girlfriend's house. You could sleep in your car for that matter. Plenty of people legally maintain a primary residence and stay somewhere else almost all the time. Think about people that travel for months on end.

What you can't do is rent out the whole house to someone else. You can get a roommate. But if you rent out the whole house, you will be committing mortgage fraud because it will be obvious it's not your residence.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
probably not but it is mortgage fraud to use a owner occ loan and not reside there.
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
4y
If you don't plan on living there, you've answered your own question.
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
4y
Quote from @Brooke Villanyi:

Hi all, was hoping to get some clarification because i can't seem to find info anywhere about my specific issue. I have a mortgage that requires one of my units to be my primary residence. I work far across town, and honestly just like the neighborhood of my old apartment better. So I've kept my old apartment as part office / crash space and stay there the majority of the time still. I might rent out the extra room in my primary residence, and keep my room with some of my stuff for when i come and go. is there any reason i should be worried about mortgage fraud?

As long as you maintain that house as your primary residence, no. That means your driver's license address should be at that house. That's where you should vote. That's where you should get your mail. That's where you should register your car. If you do all of that, there's no law that says you can't sleep anywhere you want 7 nights a week. You could stay at your friend's house. You could stay at your girlfriend's house. You could sleep in your car for that matter. Plenty of people legally maintain a primary residence and stay somewhere else almost all the time. Think about people that travel for months on end.
What you can't do is rent out the whole house to someone else. You can get a roommate. But if you rent out the whole house, you will be committing mortgage fraud because it will be obvious it's not your residence.
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Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @Brooke Villanyi:

Hi all, was hoping to get some clarification because i can't seem to find info anywhere about my specific issue. I have a mortgage that requires one of my units to be my primary residence. I work far across town, and honestly just like the neighborhood of my old apartment better. So I've kept my old apartment as part office / crash space and stay there the majority of the time still. I might rent out the extra room in my primary residence, and keep my room with some of my stuff for when i come and go. is there any reason i should be worried about mortgage fraud?

This is for the people who read this but never comment, so I'm not picking on you. You were smart to ask the question. It is those who assume they know but are wrong that may end up in trouble.
Under current federal and state laws, a mortgage fraud conviction can result in up to 30 years in federal prison and up to $1 million in fines. In a mortage there is also wire fraud and fraudulent schemes with other punishments.
Basically there are two types of mortgage loan fraud - fraud for property and fraud for profit. The fraud generally involves material misrepresentation or omission of information with the intent to deceive or mislead a lender into extending credit that would likely not be offered if the true facts were known.
An owner occupied loan has a lower interest rate because it's deemed safer to lend on. A non owner occupied is riskier and has a higher interest rate. In really bad times like 2008, people are less likely to honor the debt on a non owner occupied loan. Therein is the reason for the very stiff penalties for lying on a mortgage application. The lender and investors deserve to know how much of a risk they are taking when they lend to you. It's their money at risk and I'm sure you'd want the same knowledge of risk if it was your money you lent out.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Account Closed:

Quote from @Brooke Villanyi:

Hi all, was hoping to get some clarification because i can't seem to find info anywhere about my specific issue. I have a mortgage that requires one of my units to be my primary residence. I work far across town, and honestly just like the neighborhood of my old apartment better. So I've kept my old apartment as part office / crash space and stay there the majority of the time still. I might rent out the extra room in my primary residence, and keep my room with some of my stuff for when i come and go. is there any reason i should be worried about mortgage fraud?

This is for the people who read this but never comment, so I'm not picking on you. You were smart to ask the question. It is those who assume they know but are wrong that may end up in trouble.
Under current federal and state laws, a mortgage fraud conviction can result in up to 30 years in federal prison and up to $1 million in fines. In a mortage there is also wire fraud and fraudulent schemes with other punishments.
Basically there are two types of mortgage loan fraud - fraud for property and fraud for profit. The fraud generally involves material misrepresentation or omission of information with the intent to deceive or mislead a lender into extending credit that would likely not be offered if the true facts were known.
An owner occupied loan has a lower interest rate because it's deemed safer to lend on. A non owner occupied is riskier and has a higher interest rate. In really bad times like 2008, people are less likely to honor the debt on a non owner occupied loan. Therein is the reason for the very stiff penalties for lying on a mortgage application. The lender and investors deserve to know how much of a risk they are taking when they lend to you. It's their money at risk and I'm sure you'd want the same knowledge of risk if it was your money you lent out.

ON Wednesday this week I took my 10 hour CE for my mortgage bankers license and there was a module on this exact subject your quote is straight out of the syllabus darn near verbatim. Bottom line mortgage fraud is serious stuff.. does it happen you bet all the time but if your the unlucky one there are severe penatlies.
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Brooke Villanyi
OP
New to Real Estate · 90034 · Member since 2019 · 14 posts · 1 vote
4y
@Account ClosedI understand that as well. I really didnt intend to spend so much time at my apartment/office space. But it has ended up that way out of convenience. I have a lot of my personal possessions at my unit that I own.. and i have a room and furniture and clothes and everything else there.
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Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @Brooke Villanyi:

@Account Closed Thank you for the reply. However, that is still very vague information, that can be easily found by a google search. It doesnt really answer my question. and also @Theresa HarrisI understand that as well. I really didnt intend to spend so much time at my apartment/office space. But it has ended up that way out of convenience. I have a lot of my personal possessions at my unit that I own.. and i have a room and furniture and clothes and everything else there.

Not to be unkind, but if you do not understand the "vague" answer, you need to talk to a local attorney. You're asking fact specific questions. You are asking for a legal decision without presenting all of the facts.

Besides, never take legal advice from some random guy on the internet. ;-) It's just general opinion/guidance.

(the answer is: Do it at your own peril.)

Recent Rulings:

Hyannis Port couple sentenced for bank fraud, mortgage schemes

New Orleans Man Sentenced for Mortgage Fraud

Former Mortgage Lender Sentenced For Fraud

Kevin Morgan pleads guilty to lesser charge in mortgage fraud case

Mortgage Loan Officer and Real Estate Agents Charged in Mortgage Fraud Scheme in Central Valley
Is that a little bit more clear?
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Brooke Villanyi
OP
New to Real Estate · 90034 · Member since 2019 · 14 posts · 1 vote
4y
@Account Closed more like im asking for an opinion from people with more experience, on a peculiar situation that isnt easy for the laymen to navigate. Starting here so i know how to move forward. What i got from you was a websters dictionary esque definition which is very broad and not what the post was asking. If i had made a post asking... what are the consequences of mortgage fraud, or what are the types of mortgage fraud, your answer would have been great. But im still left asking the same question. The "Do it at your own peril" was more helpful. In any case, i appreciate the input.
1 Reply
Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
You certainly won’t be renting out your primary home if “you didn’t intend to profit”. Since ANY rent would be profit.

Refinance it as a rental, unless you already “profited” by not being required to put 25% down or by being given a lower mortgage rate. You’ve obviously “profited” or you would have gotten an investment loan. Why do people insist on screwing people that trust them with their money?

Spend one year there like a decent person and pretend all those profits are paying for your suffering of having to live in a home you say you planned on living in.

Yes. You’ll probably be fine. You probably won’t get caught this year or next year or in a few years. As long as you have nothing to lose if you have to make an insurance claim but are denied because you don’t have a landlord policy on your rental. The county probably won’t accuse you of tax fraud for taking the owner occupant discounted rate. I mean how would they ever catch you? How would they know where the property tax forms are sent, the car registration, the bank statements. Real estate is already so good. Please don’t cheat. And please don’t respond with you weren’t going to lie, or you were just asking a question. That’s what they all say. Every single week someone posts the “hypothetical question”.
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Brooke Villanyi
OP
New to Real Estate · 90034 · Member since 2019 · 14 posts · 1 vote
4y
@Bill B. Like i had said somewhere above, none of this was planned or intentional, its just played out that ive kept the other place thus far, due to construction at first and then because it was convenient and its nice having the extra space. I was planning on getting a roommate regardless of me keeping the apartment, to help out with the bills. Im not trying to screw anyone of anything. I have a situation that i was asking honestly about BECAUSE i follow the rules and want to make sure im doing so. and if i have to commute an hour i will, but would prefer to have both spaces if its not an issue, which is why im asking. Its not a rental, its my home, i have my stuff there, but at the moment im only staying the night there about 1/4 of the time.
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Brooke Villanyi
OP
New to Real Estate · 90034 · Member since 2019 · 14 posts · 1 vote
4y
@JD Martin This is super helpful, thank you.
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
Good to hear. Stay on the legal side. This kind of fraud is what makes life harder for those of us who follow the rules/laws. You got 6 answers and they all agree. You can click on the magnifying glass in the upper right and see the other 2000 times it’s been asked. You’ll see the answer is always the same.
Pulling this kind of fraud today is like a shoplifter from the 1920’s not knowing about security cameras. MAYBE a professional thief can get away with it. But the law abiding good guy doesn’t have a chance.
Good luck with your investment.
Ps. I just noticed it looks like you’re in LA. If by “one of my units” you mean you bought a 2-4 unit building. I’m pretty sure you want to live in one of the units. I BELIEVE it allows you to escape some if not many of their draconian rental property laws. But check with an LA/California expert if this is the case.
1 Reply
Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @Brooke Villanyi:

@Account Closed more like im asking for an opinion from people with more experience, on a peculiar situation that isnt easy for the laymen to navigate. Starting here so i know how to move forward. What i got from you was a websters dictionary esque definition which is very broad and not what the post was asking. If i had made a post asking... what are the consequences of mortgage fraud, or what are the types of mortgage fraud, your answer would have been great. But im still left asking the same question. The "Do it at your own peril" was more helpful. In any case, i appreciate the input.

You're being a good sport. ;-) Here is the problem (or one of many) the IRS is hiring 87,000 new agents (I can't even count that high.)

They will be going after:

1. PPP loan fraud (11.8 million loans showed signs of fraud)

2. EIDL loan fraud ($78,000,000,000 in suspected EIDL loan fraud)

3. Mortgage fraud (as you can see they are actively prosecuting)

4. People who claim under $25,000 income are 5 times as likely to be audited

5. Investors will be audited

6. Anyone with more than one property will be audited.

(Now, I say will be but that is only speculation. Maybe they are hiring 87,000 new IRS agents to form poker clubs, I don't know, but I can make a very educated guess.)

7. The statute of limitations for fraud was lengthened by Obama in 2009 to 10 years from the occurrence. That means you can be indicted 10 years after. You'd probably have sold the house by then and wouldn't remember what you put on the form. But, the paperwork still exists in storage and they pull that out and ask some very probing questions. Some of which you can't anser so they assume you are guilty. Sucks, I know, but that is how the system turns and the stomach churns. Just play according to the rules or don't play the game. By the way, if the IRS finds mortgage fraud they assume Tax Fraud. Of course, it all goes together. How can you file your taxes properly if you commit mortgage, PPP, EIDL or any other kind of fraud?

I can't tell what the real estate market is going to do in Dec 2022 let alone what the army of IRS investigators are going to be going after in 10 years, on something you do today. Fair enough? It is not a time to push the envelope. The government wants money and they will audit, audit, audit until the polka dot cows come home.

Plus, I write this for all of those who find this later in time, so there is no mistake that if they choose to play loosey/gooosey with "little lies" on documents or choose to not follow the agreements they sign, then they can get free room & board care of the US Department of Corrections. Yes, it is very serious.

87,000 NEW IRS agents. They are taking things seriously.
2 Reply
Fikret Sivac
Chicago, IL · Member since 2017 · 25 posts · 24 votes
4y
@Mike Hern haha 30 years in prison. That's ironic cuz that's how long the mortgage is. So if you don't want to live in your primary residence for 30 years than they government gives you a free 30 year residence at their place for free.
1 Reply
Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
4y
@Brooke Villanyi I know a number of later in career folks who maintain their primary residence and have another "pied a terre" in the city for work (I hope) stay there during the week and come home Fri-Mon kind of thing. You can certainly have a legit primary residence and spend lots of time elsewhere. Intent matters.
Why not ask your lender? Send a letter saying you will maintain a second commuting residence for part time purposes but that your new purchase is meant to be your primary home. Yea, you probably just draw attention to yourself, but now you have no issues pending if they ever ask.
1 Reply
Mark Fein
Member since 2022 · 91 posts · 38 votes
4y
Quote from @Account Closed:

Quote from @Brooke Villanyi:

Hi all, was hoping to get some clarification because i can't seem to find info anywhere about my specific issue. I have a mortgage that requires one of my units to be my primary residence. I work far across town, and honestly just like the neighborhood of my old apartment better. So I've kept my old apartment as part office / crash space and stay there the majority of the time still. I might rent out the extra room in my primary residence, and keep my room with some of my stuff for when i come and go. is there any reason i should be worried about mortgage fraud?

This is for the people who read this but never comment, so I'm not picking on you. You were smart to ask the question. It is those who assume they know but are wrong that may end up in trouble.
Under current federal and state laws, a mortgage fraud conviction can result in up to 30 years in federal prison and up to $1 million in fines. In a mortage there is also wire fraud and fraudulent schemes with other punishments.
Basically there are two types of mortgage loan fraud - fraud for property and fraud for profit. The fraud generally involves material misrepresentation or omission of information with the intent to deceive or mislead a lender into extending credit that would likely not be offered if the true facts were known.
An owner occupied loan has a lower interest rate because it's deemed safer to lend on. A non owner occupied is riskier and has a higher interest rate. In really bad times like 2008, people are less likely to honor the debt on a non owner occupied loan. Therein is the reason for the very stiff penalties for lying on a mortgage application. The lender and investors deserve to know how much of a risk they are taking when they lend to you. It's their money at risk and I'm sure you'd want the same knowledge of risk if it was your money you lent out.

I am also astonished by the numbers of "Pros" on these forums that openly encourage and advise mortgage fraud. Thank you for posting this.
2 Reply
Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
It gets into the weeds and people yawn when it comes to contracts, so I'll keep it brief. For anyone interested, the following paragraphs are from a Deed of Trust (Mortgage) agreement. You can click on them to expand them to read. If you meet the requirements, you are generally safe. (by the way, these are not "suggestions" they are enforceable requirements.) Note: these are for Owner Occupied loans. Investment and 2nd property loans are different.

2 Reply
Sergey A. Petrov
Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
4y
@Brooke Villanyi - without getting into the nitty gritty, if one were to ask you where you live or the address to your primary home, what would you say? You can’t say I live in Hawaii during winter months, spend some time in Arizona depending on the weather, have a place in NY where I spend a few weeks here to hang out with my kids, grandkids, whoever else. What is your PRIMARY address? Answer that and you’ll know if you are committing mortgage fraud. You can have cars, toothbrushes, underwear, roommates, at multiple places. What is your main residence?
2 Reply
Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
4y

@Mark Fein so I scanned this thread after your comment and literally not one of the answers--pro or not--advocated for any kind of fraud. Quite the contrary. Or are you making broader comments about previous postings?
1 Reply
Mark Fein
Member since 2022 · 91 posts · 38 votes
4y
Yes, my comment is general about many other posts I have seen. It has nothing to do with this thread in particular.
1 Reply
Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
4y
@Mark Fein yep, have to agree. And I'd add in illegal units, easement issues and permits as other areas where you see people doling out very bad advice. "Its never been a problem, don't worry about it..."
0 Reply
Brooke Villanyi
OP
New to Real Estate · 90034 · Member since 2019 · 14 posts · 1 vote
4y
@Jonathan R McLaughlin thank you so much. Was considering talking to the lender but as you said, attention. But i will go ahead and do that i just wanted to make sure there wasn't anything i was t considering first.
0 Reply
Brooke Villanyi
OP
New to Real Estate · 90034 · Member since 2019 · 14 posts · 1 vote
4y
@Jonathan R McLaughlin thank you
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Natalie Schanne
Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
4y
@Brooke Villanyi - I don’t know your finances, but are you financially ok maintaining both properties? Usually a lender will consider your debt to income ratio assuming you will be dropping your current apartment when you buy a house. So the mortgage loan application you signed said xxxx monthly income and xxxx monthly expenses, and they calculated your debt to income ratio off that.
My first house - I bought a 5 bed 3 bath and lived in the basement while I rented out the 4 other bedrooms. After a year I changed jobs and I also rented out a room in someone else’s house to live in (equivalent to a 2 bed apartment) and then rented my bedroom out so I could walk to work (my home was about 50 mins away from my job.) When I found a sweet 2 bed 1 bath upstairs of a house to rent for $600/mo so I didn’t have to drive 2 hours every day, I loved it. I rented my room out for about $800 (so then I was renting all 5 bedrooms). Win win.
2 Reply
Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
4y
@Natalie Schanne makes a great point. If it's the neighborhood and convenience of commuting that's the draw not your apt/office per se get rid of it get the primary loan and rent a new office/crash pad for commuting after after. No DTI issues
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