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9/22/2017 12:11:25 AM
Posted: 9/22/2005 7:00:43 PM EDT
[Last Edit: 9/22/2005 7:27:32 PM EDT by slash-5]
So my wife and I live in a condo (and we have for 7 years). We decided to build a house last November, found one we liked and signed with a local builder.

Since that time, we have been through myriad delays and a lot of shady dealings on the part of the finance company. For example, they have sent us addendums to the contract along with a cover sheet that described the addendum as “acknowledgement of receipt of a policy change”. The part that is really upsetting is that the addendum potentially could have cost me $27K! They have refused to give me a closing date (until recently), and stalled on everything.

I ran this past my real estate agent, and he explained that many builders/mortgage companies (they are both the same group, in my case) have been trying to make the process as difficult as possible so buyers will “walk” from the deal and allow the builder to reap huge profits when they sell to another buyer (because the market has gone up since we signed—our house is now worth about $65-85K more than we will pay for it).

So, he encouraged me to use another lender. While I was in talking to the second lender, he recommended that I re-finance the condo I am currently in. I originally didn’t want to do it because we were going to be buying this other house. But as time wore on, I began to fear we would not be getting the second house and interest rates started to climb. I decided we couldn’t take the risk, and we decided to re-finance the condo.

The process for re-financing the condo kinda got drug out, and today we finally signed the paperwork. We should also close on the second house in about a week.

The problem is this. We will probably be renting the condo out (and we may have renters already). However, we financed the condo as “owner-occupied”, not as an investment. When we signed the papers, I raised the question with the title agent, a senior person at the title company and my mortgage broker. They all agree: I can finance as “owner occupied” because I occupy the condo right now. I have lived in it for 7 years. Etc.

However, the paperwork I signed had two parts:
1) There was a section that stated that I would have to live in the condo for a period of one year after the refinance. If I did not, the mortgage company could recall the loan and/or raise the interest rate. I am not really worried about this, as I’ll just pay the higher rate, or refinance as an investor if they recall the loan.

2) There was a separate (unrelated) section that said that I was getting this loan as “owner-occupied” and would be subject to penalties/fines/jail time if I was fraudulent in filling out the paperwork. When I brought this up to both title agents, my mortgage broker and my realtor, they all agreed (separately) that this is for investors that will never live in the house. Since I have lived there for 7 years, it does not apply to me.

In summary, a side of me wants to walk from this loan. On the other hand, if I do and I do not get the other house, I will be an idiot for not re-financing at a lower rate when I could.

Guys, what should I do? I have three days to walk if I want to.

I have always tried to live as ethically and morally as possible. However, the language in the documents was so complex and convoluted that I can’t tell if I am doing the right thing or not.

Help!
Link Posted: 9/22/2005 7:25:54 PM EDT
Walk.

No way would I sign something like that.
Link Posted: 9/22/2005 7:30:29 PM EDT
Walk. These sound like clauses from hell. What kind of Shylocks do you have there in AZ?
Link Posted: 9/22/2005 7:40:58 PM EDT
My $0.02 ---> Generally, AS LONG AS YOUR MORTGAGE COMPANY GETS PAID, THEY DON'T CARE WHAT YOU DO. If you occupy the condo now, it seems to me like it would be perfectly honest to say that you are seeking a loan for owner occupied. You plan to lease the condo down the road, but you don't know for certain that you will.

If you are really concerned about it, get a lawyer. Your real estate agent, your banker, and I are not lawyers. Get a real lawyer who specializes in real estate, you will save money down the road. He should also have some advice on the house you are building. Don't let the builder screw you.

Now this is down the road... but if you have never rented real estate before, educate yourself before you do. I have seen so many people ruined because "I rented to my cousin," or "I didn't pull a credit report because they seemed nice." There's too much to explain here. But talk to someone who has rental properties or find a local investors/landlord association. If your city is big enough for condos, there is probably an investors association.

OK that's lengthy but you've piqued my interests. I am a law student who wants to become a real estate attorney
Link Posted: 9/22/2005 7:42:26 PM EDT
Set them up. Get a friend to contact the seller to inquire about the house. When the seller wants to sell your friend the house and screw you, sue them and take the house for free.
Link Posted: 9/22/2005 7:48:42 PM EDT

Originally Posted By APBullet:
Set them up. Get a friend to contact the seller to inquire about the house. When the seller wants to sell your friend the house and screw you, sue them and take the house for free.



I am talking about two separate houses here. The first is the condo in which we live currently. The second is a house we are having built.

With regard to the second, they can't sell it out from under me as I have a contract. However, they can make it as difficult for me as possible so I will walk from the deal...

What I am really concerned about is missing an opportunity to re-finance our current house (the condo) and miss out on the new house as well.
Link Posted: 9/22/2005 8:32:19 PM EDT
One option outlined in the paperwork itself is to simply draft a letter to the mortgage company after the other house goes through, tell them we have purchased another home to use as a personal home, and then accept whatever changes they want to make for the loan…
Link Posted: 9/22/2005 10:10:58 PM EDT
Are you sure there wasn't an affidavit or statement in your closing docs which affirms you're buying as a personal residence and will occupy for at least the next 6 months? That's typical in WA state. Also how are you financing the new home, as a primary residence? If so this may cause problems with that loan as you'll have to sign that that home is your primary residence. I would think an underwriter will see that you can't have 2 primary residences.
Link Posted: 9/23/2005 5:06:49 AM EDT
I think I am going to cancel the loan. I found an article online that is very similar to our situation, and the lawyer answering the question says taking the loan would be fraud. Read on:


Owner Occupancy Issues
by Henry Savage

Question: My wife and I have been looking to purchase our second investment property. We stumbled across a home that we would love to buy as our primary residence. Our plan was to refinance our current home to a 30-year fixed-rate mortgage (we currently have a 15-year fixed rate) to lower our monthly payment. This would enable us to rent out the house with a positive cash flow and buy the new one. Our lender told me that our rate would be higher because the property will eventually be held as a rental. Since we will be living in the property throughout the refinance process, why wouldn't we be able to obtain a rate for owner occupants?

Answer: Your lender is giving you good advice and preventing you from committing loan fraud. On page four of the Standard Uniform Mortgage Application, there is a question that requires an answer. The question is, "Do you intend to occupy the property as your primary residence?"

Obviously, the answer is "No." Even though you would be living in the property up until loan closing, the key is that your intent is to move out and rent the house shortly after settlement of the refinance.

I remember many years ago I had a customer who tried to convince me that one of his properties should be considered owner occupied. Apparently the house was vacant because a tenant had moved out and he was having some cosmetic improvements made before the house went back on the rental market.

So this guy tells me that he is sleeping on the floor in the vacant house while the improvements are being made. Such a move, he said, satisfied the owner occupancy requirement. His wife, in the meantime, remained living in their current residence located in a more affluent neighborhood across town.

Come on -- give me a break. Some people go to great lengths to cheat the system in order to save a half percentage.

Let's determine what would qualify as "owner occupied." Many lenders require that the borrower sign an "Owner Occupancy Affidavit" at loan settlement. The language in the form can vary from lender to lender, but the basic message is that the person who signs the form is acknowledging that there is no preexisting plan to vacate the property. This is something that you obviously could not truthfully execute.

Where do you draw the line? Surely a homeowner can't truthfully warrant that he will use the property as his primary residence forever. As long as you don't have specific intent on vacating the property at a predetermined time, you can truthfully sign an Owner Occupancy Affidavit. For example, let's say you decide to take advantage of today's low rates and refinance your house. At the same time, you and your wife are keeping an eye out in case a property comes up that you love. This could take a few months. In fact, you might realize that remaining in your current residence is the best thing. But if your dream home pops up on the market a few months after your refinance settlement, I don't think anyone's going to question your motives. In fact, I've never heard of any lenders actually verifying occupancy after closing.

The bottom line is that making loans secured against rental property carries a higher risk, and therefore carries a higher interest rate. Lenders don't want to make loans on investment properties unless the property is disclosed as an investment property. Seeking a mortgage for a primary residence when you know the property is not or will not be your primary residence is a form of loan fraud. Don't go there.

Published: February 26, 2004



realtytimes.com/rtcpages/20040226_occupancy.htm

The key here is a pre-existing agreement. We have a pre-existing agreement to buy another home as a primary residence.
Link Posted: 9/23/2005 5:54:51 AM EDT
My wife manages 2 real estate offices. I showed her your post and she said this isn't unheard of in areas where the market is booming. It generally isn't a good idea to use the builder's finance company.
In MN the realtors are regulated by the state Commerce Dept but mortgage lenders aren't and the opportunity for them to screw you is very real. Don't know about AZ.
Her advice - get a real estate lawyer ASAP.
Good luck.
Link Posted: 9/23/2005 9:36:43 AM EDT
A contract is a contract.

You don't have to sign any addendum, or modification for the ORIGINAL contract to remain valid.

The lender may decide to walk, but would be in breach, and you could sue on that breach.

Go see a real estate lawyer today.
Link Posted: 9/23/2005 10:01:26 AM EDT
As a developer and agent, you need to understand this lesson in a hot market:


Builders always want their house back.

It is very common (such as in Vegas) to show up to an open house & you want to buy it. You must use the builders real estate agent and the builders lender. This keeps things in house and simple, plus there's probably a bit of kickback going on. I've got a development going on down in Vegas right now and the list of people wanting to buy is 10 times more than I have houses.
The up side for keeping everything in house for the builder (besides any $ items) is that his lender will really look extra hard at every potential buyer so they get a very solid deal VS getting right down to closing & having a buyer that can't qualify because he has a bad lender (happens alot) or they screw things up for themself (happens too).

In your case, you are looked at as being "grateful for the opportunity to give your money to the builder for your fantastic house". Therefore, you need to bend over and do whatever is necessary & walk on egg shells if you really want this place.

Where are you buying?
Link Posted: 9/23/2005 10:17:25 AM EDT
Why don't you have a real estate lawyer?In the scheme of things we are the least expensive part of a real estate transaction and people try to save a few bucks. I can never figure this out! They take advice from realtors and mortgage brokers who don't get paid unless the deal goes through. How unbiased do you think their advice will be!? Go to an experienced real estate lawyer in your state.
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