Mortgage liability for renting a second home?

[David Franz]

I used a 2nd home mortgage to finance an out of state condo. I told my mortgage broker we intend to live there while our retirement house is built in 3 to 5 years, but we would be renting it until that time.

The mortgage was sold before closing. The day before closing the the underwriter freaked out because I had insured it as a rental, because it has current tenants, and the deal almost blew up. The mortgage broker never asked if it was occupied and I didn’t know that was important - lesson learned.

My question is: should I refi it as an investment? The condo is going into a REPT, but I intend to pay the mortgage from my LLC. What bad things can happen if the mortgage holder gets upset with this arrangement?

On a personal note, largely because I was a professional pilot I am a rule follower. If there was something “shady” about the way I did this deal (I was under the impression this is common practice) I’d rather pay the $ to refi than have the mortgage holder foreclose.

Candid thoughts appreciated, thank you.