California’s high risk for owner-occupancy mortgage fraud (2024)

FAQs

How do lenders detect occupancy fraud? ›

Mortgage Fraud Red Flags: Occupancy Fraud

To anticipate occupancy fraud, lenders should be on the lookout for appraisals that include expected rent payments, buyers who provide evidence of living “rent-free” in their residence, and very large down payments.

In short, they're caught red-handed. Because occupancy fraud is a federal crime, there's little chance the person will be given probation. According to the United States Sentencing Commission guidelines, a person convicted of occupancy fraud would be given prison time.

Occupancy fraud is akin to banking fraud, where banks can request the loan be paid in full. Those who commit occupancy fraud may also face fines, penalties, and even jail time.

If the borrower indicates that the property will be their primary home, they usually are given 30 to 60 days to occupy the property. After that time, the lender may hire someone to physically verify occupancy, a practice known casually as an “occ knock”.

The most common exception is when the owner needs to relocate due to work, family, or other unavoidable situations. In such cases, the borrower/owner should inform the lender about the change in circ*mstances to avoid committing occupancy fraud.

Lack of due diligence by loan officers or others involved in process. Acceptance of suspect or inaccurate info. Inaccurate representation of current occupancy.

Can you get out of the owner occupancy clause? If you decide later on that you no longer want to occupy your current home, you'll need to contact your mortgage company. Ultimately, it'll be the mortgage company that decides whether or not you can convert your home to a rental property.

Essentially, banks need to ensure that occupants have vacated the property under foreclosure and are not squatting. Similarly, if a tenant misses a mortgage payment, banks may schedule an Occupancy verification inspection to see if the tenant has abandoned the property.

Fraud for property 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.

The FBI is the agency that handles most criminal mortgage fraud investigations. You can report mortgage fraud to them by calling 202-324-3000 or by using their website at https://tips.fbi.gov. Other federal agencies also investigate mortgage fraud but the FBI is generally the best place to start.

What is the penalty for lying on a mortgage application? ›

Mortgage fraud can get you a maximum penalty of 30 years in federal prison, up to $1,000,000 in fines, or a combination of these punishments, according to the FBI. Falsifying income, assets, debt, your identity, or the value of real estate to sway a mortgage lender's decision constitutes criminal activity.

Verification of Occupancy combines the wide-reach of LexisNexis® public and proprietary records with powerful linking and analytics to deliver a comprehensive evidence of occupancy perspective that links disparate information in one place for quick risk analysis.

Banks use two-factor biometric authentication to verify your identity through a piece of who you are. For example, it could be your fingerprints, voice, typing behaviour, facial features, iris structure, and even your hand shape.

This can vary by state. Typically, the borrower shall occupy, establish, and use the principal residence within 60 days after the execution of the security instrument. Refer to the applicable state security instrument form for requirements.

What is Reverse Occupancy? A borrower buys a home as an investment property and lists rent proceeds as income in order to qualify for the mortgage, but instead of renting the home, the borrower occupies the home as a primary residence.

Occupancy fraud occurs when the borrower states on the application that they intend to live in the home they are buying when it's actually an investment property. So before you sign a mortgage application or any other loan documents, carefully review them to make sure they are complete and accurate.

Real estate fraud occurs when individuals or agencies provide false information for fraudulent real estate transactions (obtaining money). For example, a seller provides false information regarding the square feet and amenities of the home they are selling, resulting in a negative impact for the buyer.

Exceptions to the alienation clause

The borrower passes away and the property is transferred to a joint owner or to a relative of the owner. The property transfers during a divorce or separation. The property is transferred to a living trust. The owner obtains a second mortgage on the home, such as a home equity loan.

The ATFO advises that upon receipt of mortgage fraud information, the ATFO conducts searches of the Automated Case System (ACS) to locate Suspicious Activity Reports (SARs) and FD-71 Complaint Forms. Special Agents (SAs) print out the SARs and FD-71s and extract pertinent information from these reports.

It's prudent to look for warning signs like: inconsistencies in the type or location of comparables. the house number in photos doesn't match the appraisal. the owner is someone other than the seller shown on the sales contract.

What are the 2 main categories of mortgage fraud? ›

Transaction fraud

Silent buyer -- The perpetrator will deceive the lender by borrowing their down payment. The lender believes the buyer invested his own money. The additional loan is hidden from the lender. Straw buyer -- The real buyer may have bad credit, so they'll use a straw buyer to act on their behalf.

Your occupancy limits clause should specify that the tenant may not move anyone else into the rental unit or add a roommate without your consent, and that doing so will be considered a breach of the agreement; violation of the occupancy limits clause gives you grounds to terminate the tenancy.

A full planning application can demonstrate to the local planning authority that the occupancy condition is no longer needed. First, it needs to be demonstrated that there is no need for 'tied' property on the holding at the time of the application, nor will there be a need in the future.

The period between occupancy (i.e. when you move into a new house) and the final closing (i.e. when you will take title of the property and thus require a mortgage), is called the “interim occupancy period.” During this time, buyers don't live in the home for free but instead pay the builder a monthly interim occupancy ...

When you're a homeowner and you're still living in your home, the mortgage company can't legally lock you out. This is true even if the company starts to foreclose on the real estate or sells it in a foreclosure sale.

An occupancy status on a mortgage refers to how one intends to use the home.

A letter of intent to occupy is a concise legal document that you write stating your intention to live in the home you're mortgaging as your primary residence. Your primary residence is important because it ties directly to certain tax benefits and usually a better mortgage rate.

They are (1) a perceived un-shareable financial need (motive/pressure), (2) a perceived opportunity to commit fraud, and (3) the rationalization of committing the fraud.

According to Albrecht, the fraud triangle states that “individuals are motivated to commit fraud when three elements come together: (1) some kind of perceived pressure, (2) some perceived opportunity, and (3) some way to rationalize the fraud as not being inconsistent with one's values.”

What state is the riskiest for mortgage fraud? ›

New York, Nevada, and Florida are the top 3 states for mortgage application fraud risk. Nevada moved into the top 3 for the first time since 2014. Hawaii and Maine are the other states in the top 5 for overall risk levels.

What Is The Penalty For Mortgage Fraud? Mortgage fraud is a serious offense, and as such can have some serious legal consequences. There is local, state and federal legislation in place to hold borrowers and mortgage professionals accountable.

Prosecutions for mortgage fraud under section 225 are fairly rare; only one case has been reported where the defendant was charged with managing a continuing financial crime enterprise in conjunction with mortgage fraud.

If there is evidence that the mortgage lender engaged in fraudulent practices or coerced the borrower to agree to its terms when forming the contract. Any such actions are illegal and will most likely render the mortgage loan contract as null and void.

If anyone, including a spouse, family member, or intimate partner, uses your personal information to open up an account in your name without your permission, this could be considered identify theft.

Knowingly providing false information on a loan application is considered fraud and is a crime. For instance, putting an incorrect salary or falsifying documents would qualify as lying — and can impact you in serious ways. You could lose your loan.

Legal Definition of Occupancy

Legally, the occupancy noun is defined as when a person has ownership or possession of land, a room, or a building that is actively living in or using it as a tenant or owner.

Suitable for occupancy means a structural area in a home currently lived in or an area not currently used for occupancy, such as a basem*nt, that an occupant or homeowner could use for living space without renovations.

The use and occupancy agreement — often referred to as the “U&O,” — is an agreement between a buyer and seller, where one of them is permitted to occupy the property for a set period. It's usually put in place if the buyer needs to move into the property before ownership can be transferred.

Do banks have facial recognition? ›

Combining sophisticated facial recognition and document authentication technologies, banks can validate customers' vital information and verify their true identities remotely.

Yes, this is possible. Identity theft was the number one reported type of fraud in 2020 [*], according to the FTC. When scammers gain access to your personal information by phishing, for example, they can do one or more of the following: Gain access to your bank account and spend or transfer all your money.

Lending companies cannot force a homeowner to live in a home when they have legitimate reasons –– or even desires –– to move. However, to get out of the owner-occupancy clause on a primary residence home loan, the owner should be able to prove that they had every intention of occupying the home at the time of purchase.

Occupancy fraud is a form of mortgage fraud that occurs when the borrower lies, stating a property will be owner-occupied. This type of fraud is relatively common and happens because lenders offer lower interest rates on owner-occupied properties.

Equity Skimming is a Mortgage Fraud committed by skimming the equity from a property as part of subprime lending refinancing. This fraud occurs when a homeowner who is in default on their real estate taxes or mortgage is offered a loan to prevent immediate foreclosure.

Straw buyer schemes typically involve a real estate agent who convinces a person with good credit to buy a home for someone with poor credit and financial problem. The person they buy a home for can be a friend, a family member, a stranger, or even a fictitious individual.

QC reviews are completed within the first 2-3 months after closing and usually re-verify credit reports, income and assets. Fraud found in these reviews are most likely to be undisclosed liabilities or job loss that happened prior to closing.

It's prudent to look for warning signs like: inconsistencies in the type or location of comparables. the house number in photos doesn't match the appraisal. the owner is someone other than the seller shown on the sales contract.

The mortgage occupancy clause requires you to make your home your primary residence. Occupancy statements are there to protect the value of the home and the lender from losing money. If you lie about your property being owner-occupied, you'll be committing mortgage fraud.

What is occupancy verification? ›

Verification of Occupancy strengthens investigations to quickly identify areas of potential exposure to mortgage occupancy risk while speeding research time and occupancy verification, fortifying occupancy fraud prevention and lowering investigative costs.

There are two distinct areas of mortgage fraud—fraud for profit and fraud for housing.

Under federal law, the crime known as “mortgage fraud” is not a specific federal charge, so acts of mortgage fraud are instead prosecuted as bank fraud, wire fraud, conspiracy or some other type of fraud, depending on the circ*mstances of the case.

There are four elements that must be present for a person or employee to commit fraud: • Opportunity • Low chance of getting caught • Rationalization in the fraudsters mind, and • Justification that results from the rationalization.

Mortgage fraud schemes are perpetrated by individuals acting alone or in collusion with borrowers, loan originators, or real estate professionals. All mortgage fraud schemes contain a material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan.

An arm's length transaction is where the buyer and seller have no relationship. They act independently from one another and act in their best interest. As a result the chance of fraud is lower and the transaction price is typically fair market value.

The FBI is the agency that handles most criminal mortgage fraud investigations. You can report mortgage fraud to them by calling 202-324-3000 or by using their website at https://tips.fbi.gov. Other federal agencies also investigate mortgage fraud but the FBI is generally the best place to start.

Through federal tax fraud investigations and money laundering charges, the Internal Revenue Service is playing a key role in the fight against real estate fraud.