Personal Finance & Money Asked on February 17, 2021
I know that most banks will require 20%/25% down on a conventional loan for an investment property. The requirement is much lower – 5% – for a home I intend to use as my primary residence. If something legitimate happens that means I cannot live there anymore (illness, tragedy, loss of job, etc…) I am able to then rent out this property. But what if I do this intentionally? Purchase with ‘intent’ to live in it as a primary residence and then just make up an excuse to turn it into a rental property? Clearly, this is mortgage fraud. But how would anyone, like the bank who has likely packaged my mortgage and sold it to someone else, know that this was my plan all along and hit me with mortgage fraud?
To be clear, I am not trying to do this. It just seems so simple and hard to detect/prove that I am struggling to understand why this isn’t done all the time? I feel like I must be missing part of the equation as mere PMI doesn’t seem a sufficient deterrent to prevent this from being rampant in real estate.
A long time ago I had a mortgage on a condo, but after a few years I wanted to sell it a move to a bigger property. The market was bad so I rented the condo to a tenant. I obtained a mortgage on my new place and moved in. A few years later the mortgage on the condo was sold. A few months later is was sold again. A few months later the newest mortgage company realized I didn't live in the condo, so they sent the mortgage back to the previous company, who did the same thing. So now I was back with the original mortgage company.
I did nothing wrong. I didn't try to hide anything. I had the original mortgage for more than 4 years before I rented the condo to the tenant. The problem was that the newer mortgage company didn't want to own mortgages on rental properties, and they wanted to send back ones they didn't want.
How did they know? The tax information at the county assessors office showed that I owned it but didn't live there. My mailing address on the mortgage file at the lender showed I didn't live there. The record at the condo association showed I didn't live there. A check of my credit file would have showed multiple mortgages, one of which was on a property address that match my mailing address.
This was back in the early 1990's. Today with all the electronic files, it would be even easier to double check this information.
If this happens in the months after you get the mortgage, they will investigate. They may ask for proof that you moved in. They may want to know when you advertised the place for rent. Check the loan paperwork to see if there is a minimum amount of time you must occupy the place.
Answered by mhoran_psprep on February 17, 2021
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