Legal Question in Real Estate Law in California

Re: Loan Type (Owner Occupied vs Investment)

If you purchase a property with the representation to the lender that you are going to occupy it and that is untrue, that is "fraud", whether a Fannie Mae or any other type of loan. You will have made a false statement under penalty of perjury in your loan application and making a false statement in connection with an extension of credit (i.e., getting a loan)is a crime under both state and federal law. I have represented clients who have faced criminal prosecution for doing what you suggest.

Lenders give lower interest rates on loans on owner-occupied property for a number of reasons, not the least of which is the fact that one is less likely to default on their home. They also allow an owner to come in with less than the minimum down payment amount traditionally demanded by lenders from investors, of 20%. Further, insurance is cheaper for an owner-occupied loan than for an investment; in the event of a casualty on an investment property which has a "homowner" type of insurance, the insurer can refuse to "payoff" (because you lied about the nature of your ownership) and the lender, who is the loss payeee, is at risk of loss of the investment in that property. A lender can not only call the loan and foreclose on you, they can sue you in civil court for damages and pursue your criminal prosecution, as well. In addition, if the tax assessor is giving you the homeowner's exemption on your proeprty taxes and you are not occupying the property, they can require you to repay the unpaid portion of the taxes plus a 25% penalty. In short, don't do it!

Re: Loan Type (Owner Occupied vs Investment)

Yes it is fraud. It is lender fraud. Most lenders will give lower interest rates and require lower down payments for primary residences as compared to investment property. Why? They figure that the borrower needs a place to live, and that they will do whatever they can to make sure the payments are made. They are also relying on your income to make the payments, not the money you receive from a renter. Plus it is easier to walk away from a property that has gone down in value or when the tenant quits paying. Should I go on? Yes, lender fraud is serious, and you should take it seriously. If you wish to invest in property, do it right.