Occupancy Clause - What if I bend the rules - Posted by Freevol

Posted by jeff on May 06, 2004 at 14:44:15:

Your 1 year starts with the refinance, because that is the mortgage the clause is attached too. I would ask the lender to reply to me in writing why they will not allow a rental at this time. The other option is to pay the mortgage up to the year date, then ask again for the letter to lease the property. I would also talk to a manager not a loan officer, bank officers are held by fast rules. A manager may be able to bend the rules in your favor if it benefits the bank or lender. You may be able to purchase the new home as a second home if you can afford both payments a while, or even rent the new home out on a 6 month lease to delay you move awhile. The last option is to rent the place you are going to move into and then sub lease. until the year is up on the old property. A lease option with a 6 month purchase agreement. There are many more ways to work out your deal, I just went with the simple ones.
Good Luck

Occupancy Clause - What if I bend the rules - Posted by Freevol

Posted by Freevol on May 04, 2004 at 16:08:28:

I am wanting to get started in real estate investing as my first step have decided to move to a new home and rent my current home. I already have a signed lease agreement with an honest family, which is good.

Now comes the issue, last fall (October) I refinanced my home to obtain a low rate and when I look back at the closing documents it has a statement that reads:

"Occupancy: Borrower shall occupy, establish and use the property as borrowers principle residance within 60 days after the execution of this security instrument and shall continue to occupy the property as borrowers principle residance for at least 1 year after the date of occupancy unless lender agrees in writing, which consent shall NOT be unreasonably withheld, or unless extenuating circumstances exist which are beyond the borrowers control.

At first glance this tells me that I would be violating this contract to start renting the property in June, but it does leave a few questions.

  1. “occupy as borrowers principle residence for at least 1 year after the date of occupancy…” I have actually lived in the house for 3 years now so does that qualify for more than 1 year after the date of occupancy? Or does the date of occupancy reset when the mortgage is re-financed?

  2. “unless lender agrees in writing, which Shall not be unreasonably withheld” This is frustrating as my understanding is that they should be reasonable and listen to my situation before denying my request. The lender has turned a deaf ear to me and will not give a written permission.

  3. I understand that they could put my mortgage in default if I bend the rules here, but given that my payments are made automatically and I have never been late and never plan to be, what are the odds that they will really put this loan in default?

  4. If they did put the loan in default would that immediatly kill my credit score? Or would I be able to re-fi with a rental property loan and avoid any credit issues?

Sorry for the long thread. Any input is greatly appreciated.


Re: Occupancy Clause - What if I bend the rules - Posted by blakeym

Posted by blakeym on May 05, 2004 at 17:36:15:

It’s unlikely that the lender will come back to you once they see a change in your hazard insurance. It would take a very savvy customer service rep to pick up on that. BUT, that being said it’s happened. The result could be that the loan would have to be refinanced at a higher rate. If you’re with one of the big lenders (chase, wamu etc) I’d not worry too much about it. If you’ve lived in the house 12 months or so I’d not be concerned. If your servicer is a smaller firm you might want to watch out.

All that being said I must tell you that I have seen lenders go back to borrowers for a change in note rate.

You’re at bigger risk if you close under a false pretence, say you’re occupying but not. Dont let this shady business practice be what you do. It’s just not worth the aggrivation if you’re caught.

Re: Occupancy Clause - What if I bend the rules - Posted by Tom-Pa

Posted by Tom-Pa on May 04, 2004 at 18:38:58:

Freevol, Banks don’t care who is living in the the house as long as they are getting there payments. When is the last time you saw a bank come and check on who is living there. They will never know and they don’t want your house.

Re: Occupancy Clause - What if I bend the rules - Posted by Freevol

Posted by Freevol on May 05, 2004 at 10:37:19:

There are two items that I’m still a little concerned about. 1. My insurance will change to a dwelling/fire policy and will no longer show the property as my primary residence.
2. My mailing address will change. I can get around this by mail forwarding.

Is it safe to assume that the branch of the mortgage co. that checks insurance doesn’t talk to the branch that handles residency issues?

Re: Occupancy Clause - What if I bend the rules - Posted by Stan (Atl)

Posted by Stan (Atl) on May 04, 2004 at 18:56:30:

You better watch yourself with your advice. Are you a bank? If not then keep your advice to yourself. I don’t mean to be harsh, but you have told him it is alright to commit fraud. He has refinanced a house AS HIS PRIMARY RESIDENCE. A house that he is fully intending on renting out. By stating that he is planning on occupying the house, he has commited fraud to the lender. Why not refi with a Non Owner Occupancy?

If they did not care, then why is that clause in the mortgage? Is this ever done? All the time. Heck, I purchase houses Sub To all the time, but I explain the risks to the person I lease the house to and all of the possible consequenses. I also explain this to the one that I purchase the house from as well. But when you go in and obtain a mortgage under false pretense, I think that you not only cross the bridge of civil penalty, but it could be a federal offense of fraud as well. I would have highly, highly recommended against getting an owner occupancy mortgage. Why do you think that they offer NOO’s?

I Need to Appologize to Tom-Pa - Posted by Stan

Posted by Stan on May 04, 2004 at 19:02:51:

First off I need to appologize to Tom. When I read the post taht he was replying to, I thought that I had read it all; however, there was a large portion that I failed to scroll to. I thought that Freevol had decided to lease his house out and then refi’d. I just read the complete post and he refi’d in Oct and leasing/renting out recently. That is totally different than what I originally understood. Now while the bank can not prove your intention if there is a large enough gap, it is very suspicous if you refi one week and lease it out the next week. That would be sort of fishy.

Again, Tom, I appologize.

Re: I Need to Appologize to Tom-Pa - Posted by Tom-Pa

Posted by Tom-Pa on May 05, 2004 at 08:15:26:

Stan, I knew that I read this post correct. I don’t believe in doing anything illegial.

Re: I Need to Appologize to Tom-Pa - Posted by Freevol

Posted by Freevol on May 05, 2004 at 08:55:10:

Thanks Tom and Stan.

So am I reading it correct that given my intention at the time of my re-fi was to live in the house for much more than 1 year and that my situation has later changed, that the lender would have a hard time making a case against me and foreclosing?

Any thoughts on if 1 year after occupancy means after I originally moved into the house 3 years ago, or 1 year after the re-fi?

Thanks again for the help.

Re: I Need to Appologize to Tom-Pa - Posted by Stan Atl

Posted by Stan Atl on May 05, 2004 at 11:32:56:

Given the time frame I do not think you will have any problem. Not saying htat you won’t have any problem. With the time that it may take you to rent/lease the home, and even if it was caught by the bank, the time that they will take to initiate any action, I would be willing to bet that you will be into the new mortgage well into a year (Oct’04). Now don’t advertize to the bank that you are renting/leasing.