Occupancy Fraud: Definition, Rules, and Penalties (2024)

FAQs

Occupancy Fraud: Definition, Rules, and Penalties? ›

What is occupancy fraud? When a person purposely lies on a mortgage application to qualify for a loan, it is occupancy fraud. Occupancy fraud is a type of mortgage fraud, a federal crime subject to prison time and fines.

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.

Mortgage fraud is a serious offense and can lead to prosecution and even jail time. Under U.S. federal and state laws, mortgage fraud can result in up to 30 years in federal prison and up to $1 million in fines, with specific consequences depending on the details of the crime.

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.

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”.

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.

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.

Mortgage fraud is typically considered a felony offense unless the amount of money involved in the scheme is less than $1,000. If convicted of committing mortgage fraud, a person can face imprisonment, a hefty fine, and restitution payments (i.e. the compensation of victims for their losses).

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.

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

Why would a mortgage company verify occupancy? ›

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.

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.

Under the Red Flags Rules, financial institutions and creditors must develop a written program that identifies and detects the relevant warning signs – or “red flags” – of identity theft.

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.

The occupancy inspection verifies who exactly lives there and works to obtain additional information such as rental amounts and a copy of the lease.

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.

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.

Owner-occupancy refers to the concept of living in the home that you own. It is crucial information from the lender's point of view because if you weren't planning to live at the home you were purchasing or refinancing, you would be classed as an absentee owner.

Locate an FBI office in your area to report fraud or call the toll-free number 1-800-CALL-FBI (1-800-225-5324).

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.

What is the maximum jail sentence a borrower can receive for committing fraud? ›

Prison penalties for mortgage fraud can be significant. A conviction for federal mortgage fraud charges can result in a federal prison sentence of 30 years, while state convictions can last a few years or more. Misdemeanor fraud convictions can bring jail sentences of up to a year.

Reporting Mortgage Fraud

Contacting the FBI field office closest to you is the best place to start, but you can also contact a consumer hotline at your state attorney general's office to file a report and get assistance.

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.

A person is guilty of residential mortgage fraud in the first degree when he or she commits residential mortgage fraud and thereby receives proceeds or any other funds in the aggregate in excess of one million dollars. Residential mortgage fraud in the first degree is a class B felony.

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.

Mortgage wire fraud is carried out by scammers who impersonate escrow officers, real estate agents, or the lender. In this scheme, they attempt to get the prospective homeowner to wire funds into an illegitimate account for financial gain during the closing process.

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.

HUD takes strong action to hold the mortgage industry accountable for the products and services they provide to families who are either seeking to buy or rent a home or struggling to keep the home they have. For example, HUD constantly monitors lenders who are approved by the Federal Housing Administration (FHA).

Shotgunning occurs when multiple loans are obtained on the same property within a very short time frame. The purpose of acquiring multiple loans concurrently is to conceal other liens that are already held against the individual property.

What is the most costly type of mortgage fraud? ›

Fraud for Profit- Fraud for Profit is also known as “Industry Insider Fraud.” This type of mortgage fraud is rated by Freddie Mac as the most costly mortgage fraud committed.

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.

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. Visit Fannie Mae's Security Instrument page to locate the applicable form.

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.

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.

Thus, occupancy type has a big impact on the risk that the lender undertakes and their chances of having their loan paid back in a timely manner. That's why lenders may charge higher interest rates to offset that added risk. In some instances, they may also require a higher credit score and larger down payment.

Owner Occupancy Guidelines

In general, you'll need to move into the property within 60 days of closing. Additionally, you'll need to live in the property for at least 12 months to qualify as an owner occupant with most lenders. In contrast, you could obtain financing as an absentee owner.

Consumer Compliance Red Flags: Lack of periodic reports to the board on compliance matters. The compliance officer reporting to someone other than the board of directors or a committee of the board. Significant deficiencies identified in compliance reviews that have not been corrected in a timely manner.

Fair lending prohibits lenders from considering your race, color, national origin, religion, sex, familial status, or disability when applying for residential mortgage loans.

The Fair Housing Act makes it illegal to discriminate against someone because of race, color, religion, sex (including gender, gender identity, sexual orientation, and sexual harassment), familial status, national origin or disability at any stage of the mortgage process, including: Approvals and denials.

What does occupancy mean property? ›

Occupancy is the act of using a room, building, or area of land, usually for a fixed period of time.

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.

the act, state, or condition of being or becoming a tenant or of living in or taking up quarters or space in or on something: Continued occupancy of the office depends on a rent reduction. the possession or tenancy of a property: You can have occupancy on June 1st.

Definition from Nolo's Plain-English Law Dictionary

Living in or using premises or property as a tenant or owner; includes someone who lives in or uses abandoned property with the intention of acquiring ownership.

When any real property is used or occupied in whole or in part as a bawdy-house, or house or place of assignation for lewd persons, or for purposes of prostitution, or for any illegal trade, business or manufacture, its use or occupancy could be illegal.

Committed Occupancy means the occupancy rate based on all current leases in respect of the Properties including letters of offer accepted by tenants which are to be followed up with tenancy agreements to be signed by the parties and for which a deposit has been paid.

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.

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.

To determine occupancy, the VA stipulates that the person obtaining the loan uses the property as their primary residence and moves in within a reasonable time frame. According to the VA, a reasonable time is usually 60 days after a loan is closed.

Fraud for housing: This type of fraud is typically represented by illegal actions taken by a borrower motivated to acquire or maintain ownership of a house. The borrower may, for example, misrepresent income and asset information on a loan application or entice an appraiser to manipulate a property's appraised value.

Does the FBI investigate mortgage frauds? ›

Given the significant role of mortgages in our economy, mortgage fraud has been recognized as a significant criminal problem by the FBI and has been treated accordingly. To that end, the Atlanta Field Office (ATFO) has a Mortgage Fraud Working Group which investigates mortgage fraud violations.

Residence Occupancy Requirements

The property you purchase with a VA loan must be a primary residence. Second homes and investment properties don't qualify for a VA home loan. And you must move into the new home within a reasonable time frame, typically within 60 days of closing on the house.

Occupancy. The law requires a veteran obtaining a VA-guaranteed loan to certify that he. or she intends to personally occupy the property as his or her home.

As a VA homebuyer, you must live in your house for at least 12 months to fulfill VA occupancy requirements. There's no hard and fast rule from the VA, but your lender will require you to sign mortgage documents indicating you plan to live in the home as your primary residence.

As for its consequences, they include lost funds (sometimes big sums as these are common during property transactions), reputational damage for companies, loss of licensing, AML and other fines, and general harm to the local and national economy.

If a seller has failed to disclose information or has misrepresented to condition, size, or value of the property that you have purchased, you could be eligible to seek . To prove misrepresentation, the plaintiff must show that they relied on false information when deciding.

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.

Homebuyer occupancy misrepresentation is now the most common form of mortgage application fraud in California. Occupancy misrepresentation occurs when the buyer of a property to be funded by a mortgage lies about whether the property they're purchasing will be used as their primary residence. [