Pay the $10,000 fine for not occupying??

19 Replies

Has anyone ever bought a bank owned property during the "first look" period for owner occupants only and just paid the $10,000 fine? I found a deal that could potentially bring in a lot so the $10,000 would gladly get paid if I could get this home. Any experience, thoughts?


Well, it's still fraud. Because you'd have to lie and say you were owner occupying. 

  1. Fraud: a deception deliberately practiced in order to secure unfair or unlawful gain (adjectival form fraudulent; to defraud is the verb).

And it totally undermines the idea behind the rule, which is to offer an opportunity to get into property to folks who don't have an extra 10k or so to throw down. If the deal is that great maybe you just want to live there for a year. 

Thank you for the definition, Jean. The property is over $500,000 so these folks would have an extra $10k to throw down. Looks like living there is the only option.

Assuming living there is not an option, why not just wait for it to get out of the "first look" period?    

If it goes under contract during the "first look" period, you may try to submit a back-up contract as an investor.

Interesting prospect.  I know I got one of these owner occupys for myself and actually lived in it for the year. Did very good on the deal. But this is not a option for most as that house met our familys needs very well.

But from what I understand the enforcement on this stuff is almost non-existent and it is mostly just on your honor. Are they really going to send someone in to see if you are going to be living in it??? I doubt it. And if they do well pay the 10k(if it is 10k and not 250K as another post suggested)

Perhaps someone on this site know how they enforce these Contract Clauses?? Or has actually heard of a case of someone being called out on it.

@Jeffrey Andrus  

I had the same initial thoughts. That was the kind of response I was looking to get but doesn't look like anyone has done it, or maybe the ones who have done it just don't want to say that openly.

Fraud is punishable with fines and possible prison time.....not worth the risk in my world.

The enforcement is terrible at best.  But the ding can be more than just a massive fine too. I've heard that 250k. I've also heard federal jail time is a possibility too. Don't mess with the govt. But here is one other issue - they may simply ban you or anyone with knowledge of the incident from participating in govt auction homes.  

For someone like me that does a large portion of my deals with hud, that would be worse than a 10k fine.

But here's my story on their enforcement. Wasn't the first look with homepath but was the owner occupy bid status with hud.  Story goes like this.

My realtor has another investor client that was watching a house. Another investor picked it up during the owner occupant status. My realtor's client flipped out when the guy bragged about what he paid.  Its not in a great area or one not one that I would invest in personally but I think it was the principle that mattered because this other investor apparently really wanted it.

My realtor had to figure out how to report it to hud. She told hud this guy was not going to live there. That he had a primary residence. 

But here was the rub. HUD told her that she would need to show proof that he was either selling it renting it out. So if she couldn't produce a listing for it for rent on MLS, there was nothing they could do.

Seemed odd that HUD couldn't check to see if the guy was living there but apparently they don't have the time and likely don't care. At the end of the day, I've always believed that hud and fannie/freddie should not be giving any deals to owner occupants anyway. Those homes are costing the taxpayer money and we should want them to get the most money possible. Clearly the most money possible can only be had if everyone is allowed to bid on them immediately - investors and owner occupants.

That being said, I think it would be stupid to risk bidding on that home unless you fully intend to occupy it and actually do so.  When you start talking 500k homes, I gotta think other investors are going to see the nonsense and they may be willing to pursue it legally even further.

For some, thats their livelihood and they aren't going to sit idly by and let some other investor get a leg up on them.  I know I'd have no problem reporting someone cheating the system. Not if it was on a property I was hoping to bid on. :-)

Originally posted by @Zach Mitchell :

Has anyone ever bought a bank owned property during the "first look" period for owner occupants only and just paid the $10,000 fine? I found a deal that could potentially bring in a lot so the $10,000 would gladly get paid if I could get this home. Any experience, thoughts?


 I bought a Fannie Mae property that has the same $10k clause (there is a separate form that states it's $10k). We're currently living in it, but we'll probably be out in month 9 or 10. 

It's not a fee.....there's a fine that goes along with the felony charge.  There's also possible jail time and a felony charge you on record that will stay with you.   Will you get caught?  Maybe not. They aren't generally on top of enforcing these things but I imagine when they do look into it they'll find someone to make an example out of.....and what better case to do that on than a $500k+ property.  It's always driven me nuts to see all these properties go at less than what I'd pay for them during the owner occupant period but I'm not willing to commit fraud to get a deal. 

I remember an article posted on BP several months ago where a cop bought 3-4 first look properties and got the special financing. Needless to say he's not longer a cop and doing jail time. But beyond the potential repercussions sounds like you have no integrity and that's no way to run a long term successful business. It will come back to bite you.

This post has been removed.

I don't think it was mentioned that this is not a Fannie Mae property, it's another large national bank.

@Pat Martin  No integrity? You know nothing about me and are making defamatory comments based on a question I asked? I appreciate your pointless post. Keep your useless comments to yourself.

Originally posted by @Zach Mitchell :

Has anyone ever bought a bank owned property during the "first look" period for owner occupants only and just paid the $10,000 fine? I found a deal that could potentially bring in a lot so the $10,000 would gladly get paid if I could get this home. Any experience, thoughts?


Having just bought a HomePath property as a first time investor, I have to say that I think that your strategy is somewhat against the point of these rules.  The goal is to encourage homeownership and it sounds like you are deliberately going against the intent of the rules.

The first look program gives people like myself with no experience one advantage of just 30 days to analyze properties - and believe me that makes a difference - to get our feet wet before competing with more experienced investors on future properties.  You guys just move so much faster than first time investors.

Personally, I think you should either buy the place and live in it, or follow the rule as designed and wait your turn.  I think that decision is up to you, but you risk financial consequences, risk future opportunities, and at the end of the day you are gaming the system against first time homebuyers.

@Scott Trench  I agree that this rule is in place for first time buyers but only as a personal residence. You said you bought as a first time "investor". Pretty sure the idea is to keep investors out of the game? Maybe that's just my opinion on the rule. Also, this is not a HomePath property and I'm pretty sure the pool of first time homebuyers over $500k in my area is extremely limited. 

With that said, I never had intentions of actually moving forward with the deal during the first look period knowing that I would be violating the agreement. I was just wondering if anyone has had experience with this before and if they were never able to occupy the property what the outcome was. If I make an offer before the 15 days are up it will be with full intention to occupy for the 1 year required. 

I wonder what the definition of "occupying " the home is ?

The short answer is yes, you could probably be in a position to pay the $10k fine if you really wanted to sell. I highly doubt you would go to jail for the one infraction, that is even if you got caught.

If you start a ring of deals where you recruit a bunch of buyers to pose as owner occupants only to flip and pay $10k fines about a hundred times, then I think you might risk jail time.

So, to answer your question, yeah, you could probably buy it with the "intention" of occupying it, but then shyt happens, right? Your job moves. Who is anyone on BP or a neighbor to criticize you for selling or renting your home because of "extenuating" cicumstances that make it problematic for you to generate cash flow? If you get caught renting or selling too early, then just own up and pay the $10,000. Just have a good story about how you couldn't keep it.

For those on forum worried about getting bid up, this isn't really a scalable strategy. You will run into an issue doing more than one every two years, since they actually do check that you didn't buy one from them recently.

When it's all said and done, just hold it for a year and then sell it. You will get a tax free gain anyway if you keep it for two years.

I don't think first look was designed for newbies. It was designed to get local governments and owner occupants into the home to stablize neighborhoods. The idea is that a homeowner or community group would invest more into the home, whereas the investor is trying to maximize profit (which could often mean minimal improvements).

With that said, I don't think they're doing the discount for owner occupants anymore. I remember they would open it up first to government agencies and non profits, then owner occupants, then a free for all.

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