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Questions on Owner Occupancy

Owner occupancy is when the buyer of a property agrees to live in the property he/she is buying instead of leasing or renting it out to a third party. Many people who plan to buy a second or third property misrepresent themselves on an occupancy affidavit, which is similar to an owner’s occupancy agreement, by falsely claiming to reside in the first property in order to cut their interest rates. However, this could have legal consequences if the lender ever finds out who the actual resident of the property is.

Listed below are a few questions answered by the lawyers on owner occupancy related issues.

If you buy a duplex as an owner occupant and you decide to buy a single family home a few months later, can you buy the second property and move into it despite owning the first one? If that’s possible, then can you also rent out the duplex?

If you use the second property like a second home, it would be considered as being owner occupied. However, if you have signed an affidavit of owner occupancy, you would violate the agreement if you rent out the duplex.

We are buying a home and signed an Owner/Occupancy Affidavit stating that we would be occupying it for the next 12 months. We also wrote an addendum at the end of the Affidavit that read that we fully meant to occupy the home but in the event that we couldn’t, a family member would take our place in the home. The offer was accepted with the addendum. Are there any legal consequences if we cannot occupy the home and have a family member move in instead?

There shouldn’t be any legal consequences. The affidavit you signed was modified by the addendum which was accepted. Therefore, the lender can’t come in later, after having accepted the addendum, and hold you accountable for a family member occupying the house.

I am buying a foreclosed home owned by Fannie Mae and am being asked to sign an owner occupancy rider which says that I will pledge to use the property as my primary residence for one year unless extenuating circumstances arise that are beyond my control. What are the extenuating circumstances being referred to here?

These circumstances would usually mean a situation where you are hospitalized or are incapacitated in some manner. The agreement basically requires you to make a reasonable effort to live in the home as agreed upon.

My company is going to buy a condo in Minneapolis. But one of covenants of the property says that we can’t rent out the place. Since the condo association has made it possible for my holding company to buy the condo, how will it affect the owner occupancy rule?

It is possible that the HOA didn't think through this very carefully. What you could do is to get something in writing from the Association that says that the rental rule will not apply in this case as long as the occupants are the owners or principals of the company. You probably don’t have to worry about anything legally if there isn’t a rental contract or agreement in place but many condo associations may enforce rules at their convenience. That’s why it’s always suitable to have something in writing from the board to strengthen your position.

Most landlords and multiple-property owners are aware that mortgage rates are usually higher on investment and second home mortgages than on owner occupied mortgages. Therefore, borrowers try and get lower mortgage rates by wrongly classifying occupancy type when buying or refinancing investment or second homes. However, it is important to know mortgage fraud is a federal offense and can have severe consequences.
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