Occupancy Affidavits When Buying a Residential Property

What is an Occupancy Affidavit? Why is it required? What can happen if it’s not honored?

When you buy a residential property, your bank will require you to sign an Occupancy Affidavit or Occupancy Agreement. This document will be signed under oath and notarized at closing.

What is an Occupancy Affidavit? This agreement will represent to your bank (the Lender) that you (the Buyer) will move into the property within the next 30 days, and usually require the Buyer to live there for a certain period of time, for example 1 year. There is no standard occupancy affidavit, and each Lender generates their own agreement, so the exact terms and language will vary from one Lender to the other.

Why Do Lenders Require Occupancy Agreements? The necessity of the occupancy agreement is due to the difference between loan packages for personal residences and investment properties. Residential loan packages come with lower interest rates while investment loan packages have higher interest rates, due to higher risk factors with investment properties that will be rented out. If the Lender is going to be giving the Buyer a personal residence loan package, they want an assurance that they will in fact be living there.

So What? What If the Buyer Does Not Honor the Occupancy Affidavit? Since the Affidavit is signed under oath and notarized, and since its terms are clear or “unambiguous,” it will be fairly easy for the Lender to enforce their rights in court. Failure to honor an occupancy affidavit is considered mortgage fraud. The most likely result is that the Lender, upon discovering a misrepresentation, can immediately call the entire outstanding amount of the mortgage note. There may also be additional civil and criminal penalties. How would the bank find out? New “Risk Management” software can help Lenders use your credit card bureau information (public records) and and tax documents (which you agree to provide as part of any closing) to determine your primary residence and check it against the property you purchased, quickly and easily.

When buying real estate property you should always seek the expertise of an experienced real estate closing attorney. Part of your attorney’s job is to evaluate your goals for the property and make sure you are getting the proper loan package.

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