Occupancy Fraud? What Is That?

April 30th, 2012

Hi, it is Brian Martucci doing a video blog from the beach. I am in Manhattan Beach, California. Take a look. Beautiful, is it not? So, today I want to do a video blog about occupancy fraud. By occupancy fraud I mean somebody that says that they’re going to live in a property as their primary residence when they really have no intention to live in the property as their primary residence. They really are going to rent it as a rental property.

Why do people do this and say that they’re going to live there when they are not? They do it because you will get a lower interest rate buying something as your primary residence as opposed to a rental property. So there’s a financial incentive, but the problem is you really can’t get one over on the underwriter in relation to anything these days.

For occupancy fraud there’s three reasons why you won’t get one by the underwriter. Number one is called a buy down in value. When an underwriter sees someone who currently lives in, for example, a $650,000 house and they are attempting to say that they’re going to live in a $400,000 condo or even a $400,000 house. The underwriter is not going to buy that they’re going to buy down in value. Why would somebody go from a four bedroom home for $700,000 to a two bedroom single family worth $400,000 in a neighborhood that’s not as nice? It doesn’t happen. It doesn’t make sense and the underwriter would not buy it.

The second reason is related to geography. If an underwriter sees somebody who works in a certain area and has a current primary residence in a certain area and then says that they’re going to buy a rental property that maybe is an hour and a half away, it just doesn’t make sense geographically, even if the property value is on par and the underwriter doesn’t see a buy down in value, they’re not going to buy it for geographic reasons.

The third reason is related to driver’s license. Now underwriters require a copy of your driver’s license and if they don’t think it makes sense based on the driver’s license, and this kind of ties into the geography. If you see a driver’s license for somebody and they live in Frederick, Maryland for example, which is at least an hour north of Washington DC, and then they’re attempting to say that they’re going to buy a property in downtown Washington DC or maybe in Alexandria, Virginia south of Washington DC and it might be an hour and a half from their current primary residence. And let’s say they work in Frederick. How can you work in Frederick and currently live in Frederick and then say you’re going to buy in Alexandria, Virginia, which could be an hour and a half away easily with traffic, and show a driver’s license with Frederick, Maryland. The underwriter might ask you to change your driver’s license. Are you willing to go to that extreme and change your driver’s license to Alexandria, Virginia to the new address to show the underwriter that you’ve really relocated and supposedly moved into this place so far away from your job?

Underwriters obviously are looking at loans much harder these days and occupancy fraud is one of the biggest things they look out for and it may sound like an odd topic to blog about, certainly a video blog, but you’d be surprised how much it happens which is why I’m talking about it because it’s one of the top things that underwriters look for, is somebody trying to beat the system and get a lower interest rate than they deserve when they really have every intention of renting a property out.

So that was the blog for today. Occupancy fraud. And I’ll be coming back to you soon with an exciting video blog from another exciting location soon. Thanks for watching.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

2 Responses to “Occupancy Fraud? What Is That?”

  1. sharon Rainey says:

    Hi

    How can I report occupancy fraud if I suspect it in the state of maryland?

    Thank you

  2. brianm says:

    Occupancy fraud is not something regulated by the state or the federal government, the only party interested in occupancy fraud would be the actual lender who made the loan. So you have to find out who has the loan on the property, and report it to that bank. I’m not sure how that would be possible though.

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