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What is Occupancy Fraud? A Comprehensive Legal Overview
Definition & Meaning
Occupancy fraud is a type of mortgage fraud where a borrower intentionally misrepresents their intention to occupy a property. This occurs when a borrower applies for a mortgage to purchase an investment property but claims that they will live in it as their primary or secondary residence. By doing so, they may secure a lower interest rate and larger loan amounts than they would qualify for if they disclosed the true purpose of the property. This misrepresentation increases the risk for banks, as they are lending money based on inaccurate information.
Table of content
Legal Use & context
Occupancy fraud is primarily relevant in the context of mortgage lending and real estate transactions. It falls under criminal law as it involves deceitful practices aimed at financial gain. Legal professionals may encounter this term when dealing with mortgage applications, fraud investigations, or litigation related to mortgage defaults. Users can manage some aspects of this process using legal templates provided by US Legal Forms, especially when preparing documents related to property transactions.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A borrower applies for a mortgage to purchase a duplex, stating in the application that they will live in one unit while renting out the other. In reality, they plan to rent both units as investment properties. This misrepresentation constitutes occupancy fraud.
Example 2: A borrower claims they will occupy a vacation home as their primary residence to secure a better mortgage rate, but they actually intend to use it solely as a rental property. (hypothetical example)
State-by-state differences
Examples of state differences (not exhaustive):
State
Occupancy Fraud Regulations
California
Strict penalties for mortgage fraud, including occupancy fraud.
Florida
Defined as a felony, with significant fines and prison time for offenders.
New York
Prosecuted under state fraud laws, with civil and criminal implications.
This is not a complete list. State laws vary and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Occupancy Fraud
Misrepresentation of occupancy status on a mortgage application.
Focuses specifically on occupancy claims.
Mortgage Fraud
Broad term for any fraudulent activity related to mortgages.
Includes various forms of deceit, not limited to occupancy.
Loan Fraud
Fraudulent actions taken to obtain a loan under false pretenses.
Can apply to any type of loan, not just mortgages.
Common misunderstandings
What to do if this term applies to you
If you suspect that you may be involved in occupancy fraud, it is crucial to address the situation promptly. Here are steps you can take:
Review your mortgage application for accuracy.
If you have misrepresented your occupancy status, consider consulting a legal professional to discuss your options.
Explore US Legal Forms for templates that can help you amend or clarify your mortgage documents.
Be proactive in communicating with your lender to rectify any discrepancies.
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