“Both of those, investments and 2- to 4-units, you very well may have property leases involved,” he said. “You could Google today a lease, download it, and fill it out. And it’s a pretty hard document to validate. I rented to John Homeowner, and he’s paying me $2,000 a month. Some of that in cash, some of it via Zelle, some of it via some other cash app. It’s really hard to track and verify until it appears on a tax return, where you can actually see it and validate it.”
“Then, in a 2- to 4-unit, you could potentially have someone state that it’s owner-occupied. They’re going to live in one unit, and the other two units are going to be rented out. That’s ripe for occupancy fraud. Not many owner-occupants would want to stay in a 2- to 4-unit. It’s not impossible, but it’s unlikely to happen.”
With both segments, you can also encounter issues with qualification numbers being manipulated to allow borrowers to qualify. This is another factor Seguin said makes this type of fraud hard to catch.
“Sometimes on a purchase transaction, you’re using future rental income, and so you know you’re qualifying to get over that 50% DTI threshold using that future rental income that the appraiser estimates for you,” he said. “And in some cases, that borrower never rents it out for that dollar amount. Things of that nature that end up really just driving up the risk.”
Occupancy fraud still a problem
Just because other types of fraud have increased, it doesn’t mean that occupancy fraud isn’t a significant problem. It has been in the news lately, as President Trump is attempting to remove Fed governor Lisa Cook due to allegations of mortgage occupancy fraud.