A borrower states a $290,000 purchase will be his primary residence, which prices 0.75 points better than an investment property. He signs an occupancy affidavit and rents the house out 5 weeks after closing. If evidence establishes that the borrower intended to rent the property before signing the affidavit, how should the false primary-residence claim be classified?
Correct Answer
B) Occupancy fraud: the affidavit was false when he signed for 0.75 points
B. The knowingly false intended-occupancy statement is occupancy fraud. The stem establishes an investment intent before the affidavit, despite claiming primary-residence intent. Later rental activity alone would not prove that original intent. Here the necessary evidence is expressly supplied; the pricing advantage explains why the statement mattered. Scope and exceptions: Do not automatically label every post-closing move or rental as fraud. Investigate the original representation, intent and relevant evidence. Source: Mortgage Application Fraud transcript: occupancy fraud — https://www.fbi.gov/video-repository/newss-mortgage-application-fraud/view
Why This Is the Correct Answer
B. The knowingly false intended-occupancy statement is occupancy fraud. The stem establishes an investment intent before the affidavit, despite claiming primary-residence intent. Later rental activity alone would not prove that original intent. Here the necessary evidence is expressly supplied; the pricing advantage explains why the statement mattered. Scope and exceptions: Do not automatically label every post-closing move or rental as fraud. Investigate the original representation, intent and relevant evidence.
Why the Other Options Are Wrong
Option A: Occupancy fraud only where the rental income exceeds the mortgage payment
The rent-to-payment comparison does not make the original statement truthful.
Option C: No fraud, since the lender can call the loan under the due-on-sale clause
A possible contractual remedy does not excuse misrepresentation; these facts do not establish an enforceable due-on-sale remedy.
Option D: No fraud: circumstances change, and 5 weeks is a reasonable window
A genuine later change is different from the prior intent established here.
Exam Tip
A later change of plans is not the same as a knowingly false original plan.
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