Legal Question in Family Law in Virginia

Re: Owner Occupied Residence

You should consult with a Virginia attorney to discuss the applicability of the law to the facts of your particular situation. The following is general legal information on mortgage loans, mortgage fraud, and divorce.

The original borrowers remain liable on joint debts to creditors notwithstanding a transfer of title and/or a property settlement agreements allocating that debt between the borrowers. The creditor has recourse against either spouse for full satisfaction of a joint debt, even though, between the parties, one spouse may have received title and assumed liability for the joint debt in a property settlement agreement incorporated into a final decree of divorce. In other words, the property settlement agreement and court decree are not binding upon third party creditors.

A property settlement agreement may provide that the spouse receiving title to real property will refinance the loan secured by that property within a certain period of time in order to remove the other spouse/ex-spouse from liability for that joint debt.

On the loan application and closing documents, a borrower is typically required to certify whether he or she intends to occupy the property as a primary residence, or is buying the property as a second home or as an investment property. This is fair to the lender as an investment property represents a greater risk to the lender and entails different qualifying conditions, including loan to value ratios. A borrower should not misrepresent his or her intention as this would constitute mortgage fraud, a criminal act under federal and state law. In addition, mortgage fraud may make the debt non-dischargeable in bankruptcy under Section 523(a)(2)(A) of Title 11 of the U.S. Code and civilly liable for fraud.

Nothing requires a borrower to occupy a residence as was intended in the loan documents and at closing for the life of the loan. For example, if a borrower purchased a property as his or her primary residence and then, five years later, decided to move and rent out the property, that would ordinarily not constitute mortgage fraud or be a violation of the note or deed of trust.

If you are in the process of refinancing and you intend to rent out your marital residence rather than occupy it, you should reveal your intention and indicate in the loan documents that the property will be an investment property. The consequences of committing mortgage fraud far outweigh any minimal benefit you might receive in lower interest rate or higher loan-to-value ratio.