What is an Occupancy Check and Why Would a Mortgage Company Do One?

April 24, 2024

Occupancy verification is a critical component in the mortgage process, protecting both lenders and the integrity of the real estate market. It’s a proactive measure that, when used appropriately, can significantly mitigate financial risk, and prevent fraud.

This is a process used by lenders and mortgage professionals to confirm whether a borrower truly resides at the property they claim as their primary residence. This verification is essential because home loans often come with different terms based on whether a property is owner-occupied or not. Owner-occupied properties typically qualify for lower interest rates and down payments because they’re considered to be lower risk.

Occupancy verification can be conducted via desktop and field investigations.


What’s the Problem?


  • Fraud on the Rise: Occupancy fraud isn’t a new trick but reports from CoreLogic indicate suspected occupancy fraud in loan applications have nearly tripled since 2020. This rise highlights the importance of robust occupancy checks to safeguard the lending industry.

  • Domino Effect of Defaults: When occupancy fraud goes undetected, it can trigger a chain reaction of problems. If a straw buyer defaults on the loan, the lender is left holding the bag for a potentially vacant property. This can strain financial resources and impact the lender’s performance.

  • Hidden Costs Beyond Dollars: The financial impact of occupancy fraud is significant, with estimates placing losses in the billions of dollars annually. However, the hidden costs extend beyond just money. Fraudulent loans can erode trust in the lending system and create a ripple effect of uncertainty that can impact the overall health of the housing market.


Why Occupancy Checks Rule:


  • Loan Eligibility: “Primary vs. Rental “: Imagine loaning someone money for their dream home, only to find out they’re planning to turn it into a short-term rental party pad. Occupancy checks ensure borrowers are using the loan for the intended purpose (think primary residence vs. investment property) to keep everyone happy.

  • Fraud Fighters: Exposing the “Straw Buyer Shuffle”: Mortgage fraudsters always trying to trick their way in. Occupancy checks are our “Do Not Call List,” helping us identify “straw buyers” (people who buy property on behalf of someone who wouldn’t qualify for a loan).

  • Protecting Your Investment: From Vacant to Vibrant: Nobody likes a deserted island, especially when it’s a property you’ve invested in. Occupancy checks help assess the likelihood of the property being occupied, minimizing the risk of vacancy-related defaults and keeping those mortgage payments flowing smoothly.


Occupancy Check Toolbox:

While we all crave efficiency, there’s no one-size-fits-all approach to occupancy checks. Here’s our toolbox of methods to choose from:

  • Desktop Review: Leveraging the power of data! Public records, utility bills, and several other sources are reviewed to verify discrepancies.
  • Field Verification: A Private Investigator visits the property to confirm occupancy visually. Think “boots on the ground” with a modern twist.
  • Video Occupancy Interview: The new Rockstar’s of verification. Think of it like a virtual tour with your borrower – secure, efficient, and you can even get a glimpse of their awesome dog (bonus points!).


By having the right tools in our belt, Frasco can ensure our occupancy checks are effective and efficient. So, remember it’s about safeguarding your loan portfolio, preventing headaches, and ultimately, ensuring everyone wins.


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