Pay the $10,000 fine for not occupying??

Question

Has anyone ever bought a bank owned property during the "first look" period for owner occupants only and just paid the $10,000 fine? I found a deal that could potentially bring in a lot so the $10,000 would gladly get paid if I could get this home. Any experience, thoughts?

Thanks

Jean Bolger · Answer

Well, it's still fraud. Because you'd have to lie and say you were owner occupying.

• Fraud: a deception deliberately practiced in order to secure unfair or unlawful gain (adjectival form fraudulent; to defraud is the verb).

And it totally undermines the idea behind the rule, which is to offer an opportunity to get into property to folks who don't have an extra 10k or so to throw down. If the deal is that great maybe you just want to live there for a year.

Patrick L. · Answer

It's not a fee.....there's a fine that goes along with the felony charge.  There's also possible jail time and a felony charge you on record that will stay with you.   Will you get caught?  Maybe not.  They aren't generally on top of enforcing these things but I imagine when they do look into it they'll find someone to make an example out of.....and what better case to do that on than a $500k+ property.  It's always driven me nuts to see all these properties go at less than what I'd pay for them during the owner occupant period but I'm not willing to commit fraud to get a deal.

Jeffrey Andrus · Answer

Interesting prospect.  I know I got one of these owner occupys for myself and actually lived in it for the year. Did very good on the deal. But this is not a option for most as that house met our familys needs very well.

But from what I understand the enforcement on this stuff is almost non-existent and it is mostly just on your honor. Are they really going to send someone in to see if you are going to be living in it??? I doubt it. And if they do well pay the 10k(if it is 10k and not 250K as another post suggested)

Perhaps someone on this site know how they enforce these Contract Clauses?? Or has actually heard of a case of someone being called out on it.

David H. · Answer

I don't think first look was designed for newbies.  It was designed to get local governments and owner occupants into the home to stablize neighborhoods.  The idea is that a homeowner or community group would invest more into the home, whereas the investor is trying to maximize profit (which could often mean minimal improvements).

With that said, I don't think they're doing the discount for owner occupants anymore.  I remember they would open it up first to government agencies and non profits, then owner occupants, then a free for all.

David H. · Answer

The short answer is yes, you could probably be in a position to pay the $10k fine if you really wanted to sell.  I highly doubt you would go to jail for the one infraction, that is even if you got caught.

If you start a ring of deals where you recruit a bunch of buyers to pose as owner occupants only to flip and pay $10k fines about a hundred times, then I think you might risk jail time.

So, to answer your question, yeah, you could probably buy it with the "intention" of occupying it, but then shyt happens, right?  Your job moves.  Who is anyone on BP or a neighbor to criticize you for selling or renting your home because of "extenuating" cicumstances that make it problematic for you to generate cash flow?  If you get caught renting or selling too early, then just own up and pay the $10,000.  Just have a good story about how you couldn't keep it.

For those on forum worried about getting bid up, this isn't really a scalable strategy.  You will run into an issue doing more than one every two years, since they actually do check that you didn't buy one from them recently.

When it's all said and done, just hold it for a year and then sell it.  You will get a tax free gain anyway if you keep it for two years.

Matthew Paul · Answer

I wonder what the definition of "occupying " the home is ?

Zach Mitchell · Answer

@Scott Trench I agree that this rule is in place for first time buyers but only as a personal residence. You said you bought as a first time "investor". Pretty sure the idea is to keep investors out of the game? Maybe that's just my opinion on the rule. Also, this is not a HomePath property and I'm pretty sure the pool of first time homebuyers over $500k in my area is extremely limited.

With that said, I never had intentions of actually moving forward with the deal during the first look period knowing that I would be violating the agreement. I was just wondering if anyone has had experience with this before and if they were never able to occupy the property what the outcome was. If I make an offer before the 15 days are up it will be with full intention to occupy for the 1 year required.

Scott Trench · Answer

Having just bought a HomePath property as a first time investor, I have to say that I think that your strategy is somewhat against the point of these rules.  The goal is to encourage homeownership and it sounds like you are deliberately going against the intent of the rules.

The first look program gives people like myself with no experience one advantage of just 30 days to analyze properties - and believe me that makes a difference - to get our feet wet before competing with more experienced investors on future properties.  You guys just move so much faster than first time investors.

Personally, I think you should either buy the place and live in it, or follow the rule as designed and wait your turn.  I think that decision is up to you, but you risk financial consequences, risk future opportunities, and at the end of the day you are gaming the system against first time homebuyers.

Pat Martin · Answer

@Zach Mitchell Just buy it and let us know what happens!

Pay the $10,000 fine for not occupying??

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