What is Occupancy Fraud?
Occupancy fraud occurs when a mortgage borrower lies to a bank about his or her intention to occupy the home that he or she is purchasing with the mortgage.
How Does Occupancy Fraud Work?
For example, let's say John lives in Denver. He wants to buy a second home in Houston. He applies for a mortgage with a lender in Houston and tells the lender that he intends to live in the home. In fact, however, John intends to stay in Denver and rent out the Houston home, thereby making it an investment property. John has committed occupancy fraud.
Why Does Occupancy Fraud Matter?
The most common type of mortgage fraud, occupancy fraud generally occurs because borrowers can usually get lower mortgage rates on loans involving owner-occupied homes. Mortgages for investment properties are typically more expensive because the default rate on them is generally higher.
It is important to note that making false or misleading statements on a mortgage application is a federal crime that comes with considerable penalties, including jail time and a decimated credit rating. Additionally, if a lender discovers occupancy fraud, it can seize the property and call the loan, making it due and payable immediately.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.