Question: My client purchased a house as a second home. When he read the "second home" rider attached to the deed, he almost did not close. He said it was nobody's business what he does with his property. What is the big deal?
Answer: Congrats on the closing but.... Is your client really purchasing the house as a second home, solely for his use and enjoyment? Or is your client planning to lease the property? If it is to be used as a rental, but he states it is a second home on his loan application, he is committing, (pardon me for being indelicate and using the "f" word), fraud by signing the second home rider.
For future clients the following, is verbiage from Fannie Mae's second home rider:
(Please skip over, if legal stuff bores you)
7. Occupancy Borrower shall keep the Property available for Borrower's exclusive use and enjoyment at all times, and shall not subject the Property to any timesharing or other shared ownership arrangement or to any rental pool or agreement that requires Borrower either to rent the Property or give a management firm or any other person any control over the occupancy or use of the Property.
8. Borrower's Loan Application. Borrower shall be in default if, during the Loan application process, Borrower or any persons or entities acting at the direction of Borrower or with Borrower's knowledge or consent gave materially false, misleading, or inaccurate information or statements to Lender (or failed to provide Lender with material information) in connection with the Loan. Material representations include, but are not limited to, representations concerning Borrower's occupancy of the Property as Borrower's second home.
Borrowers justify their purchases with the following: I'm buying the home for a family member, or my best friend that lost their house, or my personal favorite: I don't think it is fair that I have to pay a higher interest rate for a rental property.
What is the penalty for mortgage fraud? One billion dollars. Actually, I couldn't find info on the exact penalty. All I could find is jail time up to 30 years and a million dollar fine for various loan crimes.
But like robbing a bank (excuse the pun) or speeding on Interstate 10, it's all fun and games until we get caught.
FYI: If you are financing a home, it belongs to the lender until the loan is paid off. Unless, of course, they lose the original deed.
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