Occupancy Fraud Law and Legal Definition
Occupancy fraud refers to a type of mortgage fraud in which a borrower materially misrepresents the facts regarding the occupancy of the home. Occupancy fraud occurs when a borrower who wishes to obtain a mortgage to acquire an investment property states in the loan application that s/he will be the primary or secondary occupier of the property and that s/he is purchasing the property to be used as an owner occupied property. If such fraud is undetected, the borrower gets a lower interest rate from the mortgage lender with respect to the property to which s/he is not the primary or the secondary occupier. In addition, larger loans can be secured by the owner by such fraudulent misrepresentation in the mortgage loan application. Such action is considered fraud because banks take on more risk since they are receiving a lower interest rate than they should be for the delinquency risk that exists. Generally when occupancy fraud occurs, the taxes on the gains are left unpaid resulting in an additional fraud.