Owner occupy duplex - am I guilty of fraud? (insurance, loan, buy homes)
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A few months ago I purchased a duplex and moved into one side (other side rented out). Thanks to owner-occupied FHA financing I was able to get a better interest rate and acquire the property with only 3.5% down payment. Of course, as part of the mortgage I had to sign an agreement confirming that I will occupy the unit for no less than 12 months.
Anyway due to various life circumstances I'm now jobless and broke. My mom (who lives nearby) has told me I can move in with her while I'm getting back on my feet, and I'm thinking yes I'll do that and rent out my side of the duplex. Better still, my brother (who happens to be looking for a place atm) likes my duplex and would happily rent there. I love this idea as I'm desperate to avoid falling behind on my mortgage. I don't want to lose this house!
I understand I can't rent out my half of the duplex until my mandatory 12-month occupancy period is over, but what about having a roomate? What if my brother moves in an occupies my side of the duplex, but I keep all the bills in my name? My mailing address would be the same, I'd still be officially "occupying" the unit, but my brother would actually be living there and simply paying me as a roomate. I wouldn't even be charging him full rent (probably like 2/3 discount or something). He's very trustworthy and honest, so I'm not worried that he'll take advantage of the situation.
This arrangement would only have to last for 8 months, by which time my 12-month occupancy clause would be over and I could then draw up a proper lease and officially rent out the unit to my brother.
Would this "owner-occupy w/roomate" scenario get me in trouble?
How many bedrooms is it? Couldn't you actually live there with your brother? I don't know the specifics of the law, but I'd think the main factor would be actually occupying the house, so if you occupy the house along with your brother I'd think you'd be okay. But technically if you didn't live there and your brother did then I wouldn't be surprised if that would be considered fraud.
How many bedrooms is it? Couldn't you actually live there with your brother?
Seeing as my brother will have his girlfriend living with him... no. There are some things I just don't want to hear at night.
This is a small unit - only 950sq ft per side and 2 bedrooms.
Quote:
Originally Posted by VictorBurek
You are not guilty of fraud. Life happens, and circumstances can change. You dont need to wait the 12 months to work up a proper lease.
Reassuring to hear, but the owner-occupy affadavit that I had to sign at closing frankly scares the hell out of me. It basically says if I fail to "utilize the property as my primary residence" they'll call the entire loan due, fine me $1 million dollars and stick me in a federal pound-me-in-the-ass prison.
If I have my brother\girlfriend living in my side of the unit as a "roomate" or "guest", with all the bills still in my name, and with all my mail still going to the duplex... is it still my "primary residence" even if I'm not there 90% of the time?
I'm not an expert and I would always recommend getting an attorney's viewpoint if you're really worried about this. But I'll offer my own gut reaction to this anyway.
Quote:
Originally Posted by Boxman
A few months ago I purchased a duplex and moved into one side (other side rented out). Thanks to owner-occupied FHA financing I was able to get a better interest rate and acquire the property with only 3.5% down payment. Of course, as part of the mortgage I had to sign an agreement confirming that I will occupy the unit for no less than 12 months.
Does that mean the first 12 months, or any 12-month period? I'm guessing it's the first 12 months you own it from what you're saying.
Quote:
Originally Posted by Boxman
Anyway due to various life circumstances I'm now jobless and broke. My mom (who lives nearby) has told me I can move in with her while I'm getting back on my feet, and I'm thinking yes I'll do that and rent out my side of the duplex. Better still, my brother (who happens to be looking for a place atm) likes my duplex and would happily rent there. I love this idea as I'm desperate to avoid falling behind on my mortgage. I don't want to lose this house!
Here's the thing: the bank and the government doesn't really want you to fall behind on your mortgage either. I certainly can't tell you that you wouldn't get into trouble, but in my general life experience, law enforcement tends to go after people who are doing things they just shouldn't be doing, and who are out causing problems on a large scale. If you genuinely went into this with the intention of living in it for the first 12 months and beyond and things just went south, as they have for a lot of us over the past few years, I don't envision you getting into trouble for using proper means at your disposal to stay afloat. Nobody wins by letting you go under.
My guess would be the clause exists for one or perhaps two closely-related reasons. One, they're trying to discourage risky borrowers who want to get into the business of flipping and using the property as some sort of risky bets -- that's partly how housing crises start, and they've probably had these laws on the books for sometime. My guess would be, as long as you weren't someone who's trying to use this to flip a home and move onto the next, nobody's going to care. The lender wants you to rent it out and stay in good stead, and so do taxpayers. You'd probably only be under scrutiny if you were going around town, betting on homes, and losing -- costing lenders and taxpayers money.
And the related thing is, a person who goes around using special federal assistance to buy homes and use them as investments is, on some level, probably misrepresenting something. And that's probably where the fraud, and the prosecution for fraud would take place.
But someone who legitimately goes in with good intentions and then has problems and tries to find a fix for it? Well it might possibly violate the letter of the law, but it probably doesn't violate the spirit of the law. It's when you violate both that you're more likely to get prosecuted.
Quote:
Originally Posted by Boxman
I understand I can't rent out my half of the duplex until my mandatory 12-month occupancy period is over, but what about having a roomate? What if my brother moves in an occupies my side of the duplex, but I keep all the bills in my name? My mailing address would be the same, I'd still be officially "occupying" the unit, but my brother would actually be living there and simply paying me as a roomate. I wouldn't even be charging him full rent (probably like 2/3 discount or something). He's very trustworthy and honest, so I'm not worried that he'll take advantage of the situation.
Again, I'm not a lawyer, but I don't see why that wouldn't be a problem. You're using it as a residence. You could probably even call it your primary residence, and even if it wasn't, having family there isn't going to raise any eyebrows. It would seem essentially legitimate. I think the real thing they're trying to discourage is you from buying it under completely false pretenses, pretending to move furnishings into it (or even not moving into it at all), and calling it a residence when it's an investment. That would get you in trouble, but I doubt what you're describing would. Could it technically violate the law? Maybe, but your intentions were otherwise good. Your intent at the time of signing the agreement was clearly not to commit deception. Moreover, your lenders and taxpayers want you to keep your home. I doubt they're after people like you; they're after 'investors' who misrepresent their intentions, using taxpayer assistance to become amateurish investors and end up costing taxpayers millions in the process.
Quote:
Originally Posted by Boxman
This arrangement would only have to last for 8 months, by which time my 12-month occupancy clause would be over and I could then draw up a proper lease and officially rent out the unit to my brother.
Would this "owner-occupy w/roomate" scenario get me in trouble?
I would think not. But maybe talking with an attorney might be best.
Are you and your brother able to set aside your personal relationship when it comes to business? If he's late or short on rent or stops paying rent, are you going to be able to do something about it? Otherwise, you'll be living with mom while brother and his gf will be living in your house and you're still not able to make your mortgage payment.
Business relationships with family members can get a little hairy...
You'd most likely be OK on the mortgage front, because it does appear that you planned to occupy the duplex for the 12 months.
I'd be more worried about your homeowners insurance policy.. what if something happens, you need to file a claim, and they find out you're not really living there and you should have a commercial rather than a homeowners insurance policy? I am NOT an expert on insurance issues, but it's something else to think about.
I tend to agree with the posters who do understand that the language for owner occupied FHA loan situations is designed to put some fear into the hearts of cheats and deadbeats. Odds of your loan being called becuase some one gets wind of the fact that you've taken on a roommate are truly NIL and although there is tiny chance that if something horrible were to happen to the place while you bro and his gal were busy with whatever it is that you are worried might be noisy, there is nearly no chance that you'd have any problem with either the lender or insurance.
Frankly I would NOT talk to an attorney for the simple fact that as officers of the court they could NOT give you legal advice that might be construed as conspiring to subvert a federal regulation. (although in practice they have ways around being bound by a narrow view of such things...)
Now if your bro lets you down and stops paying you so you end up behind the eight ball the difficulty problem of how you can afford your mortgage is still a real problem...
Now if your bro lets you down and stops paying you so you end up behind the eight ball the difficulty problem of how you can afford your mortgage is still a real problem...
And kicking the deadbeat out. Just kidding.
Would I do it. Hell yes and with a lease month to month.
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