The real estate world is intricate. Transactions should be made with the utmost care, especially if they’re mortgage-related. Plus, there’s a step that cannot be overlooked: occupancy verification.
If you’re a lender or plan to invest in a rental property, this verification process can help you identify potential occupancy fraud and avoid the costly consequences it may come with.
What Is Occupancy Verification?
Occupancy verification checks whether a borrower actually lives on the property deemed as their primary residence. As such, it’s a crucial step for lenders, investors, and mortgage professionals.
All home loans can have different terms, and many of these conditions are based on whether the property is owner-occupied or not.
For example, owner-occupied properties are considered low risk, which usually translates to lower down payments and interest rates.
Why are Manual Occupancy Checks Important?
When a person provides incorrect information about their occupancy status to reduce their interest rate and down payments, it can be considered fraud.
Owner-occupied properties don’t usually go into default because homeowners tend to make these payments on time.
However, this isn’t as common when borrowers aren’t living in the home. Actually, such properties are more likely to go into default, which can become a huge problem for lenders, investors, and mortgage professionals.
In this regard, occupancy verification is essential to set the appropriate loan terms for each scenario and, ultimately, protect real estate portfolios.
How Occupancy Verification Works
Occupancy checks can involve physical site visits or desk reviews, which means professionals can go to the property or review public and proprietary databases to confirm its status.
Other methods can also be used to check whether a borrower occupies a property as their primary residence or not, including the following:
- Telephonic interviews
- Insurance documents review
- Social media profile examinations
What Are the Consequences of Skipping Occupancy Verification?
As mentioned, lenders, investors, and mortgage professionals need to verify if the borrower actually resides on the property to prevent occupancy fraud.
It’s their responsibility to do proper verification to avoid potential repercussions, which may include higher default rates, financial losses, and legal complications.
Scenarios Where Occupancy Verification Services Become Essential
As explained above, occupancy verification is the process of confirming a borrower physically resides in a rental property.
It has become a crucial step for lenders, investors, and property managers who want to safeguard their investments and portfolios.
These are the most common scenarios where occupancy checks become essential:
Initial Loan Application
When securing a loan for a property, lenders should heavily rely on accurate information in order to estimate interest rates or down payments and prevent default.
Essentially, occupancy verification ensures a home isn’t vacant, as this can significantly impact the property’s value and the borrower’s ability to generate income, lead to legal issues, and affect real estate businesses.
Random Audit
Regulatory bodies often conduct random audits to verify compliance with lending regulations. Occupancy verification helps confirm the borrower hasn’t misrepresented the property’s occupancy status, which can jeopardize the loan.
Suspected Fraud
In cases of suspected fraudulent activity, such as falsified leases or rent payments, occupancy checks provide crucial evidence.
Physical verification of occupancy helps expose the fraud and protect the lender’s financial interests.
Loan Modification or Refinancing
When seeking a loan modification or refinancing, occupancy verification can strengthen the borrower’s case.
By confirming consistent tenant occupancy, residency, or stable rental income, borrowers can demonstrate the property’s profitability and secure more favourable loan terms.
What to Look for in an Occupancy Verification Service
Choosing a reliable occupancy verification service is crucial for lenders, investors, and mortgage professionals who want to ensure the process is smooth and avoid potential legal consequences.
Therefore, it’s important to look for the following:
- Thorough verification methods: The service provider should employ a multi-layered approach that includes physical visits to the property, contacting neighbours, and verifying utility usage.
- Compliance with regulations: Property management companies offering occupancy verification services must adhere to local regulations to avoid any legal complications.
- Fast and efficient turnaround: Timely verification reports are essential to avoid delays in loan processing or property management decisions.
- Technology integration: You should look for services that utilize solid technological solutions for efficient communication and reporting, allowing for easy access to verification results.
Is It Possible to Tailor This Process to Each Client’s Needs?
The best occupancy verification services are always customizable. Providers should understand the diverse needs of their clients and tailor their offerings to them.
If the property management company you work with offers customizable occupancy verification services, you can specify the desired level of verification based on the situation.
That means you can choose between performing physical visits, contacting neighbours, or reviewing databases. Plus, it’s the best way to make sure these services suit your budget.
Final Thoughts: Occupancy Verification Is Essential in the Mortgage Landscape
As mentioned, occupancy verification plays a critical role in safeguarding lenders, investors, and property managers in the intricate real estate market.
By ensuring accurate tenant occupancy or residency information, these services mitigate risk, promote compliance, and ultimately contribute to a stable mortgage landscape.
Plus, lenders, investors, and property management specialists can use this process to avoid fraud and its potential legal or financial consequences.
Looking for a Reliable Property Management Partner?
Verifying occupancy is just one aspect of successful property management.
For a comprehensive solution that includes occupancy checks, rent collection, maintenance coordination, and more, consider partnering with a reputable property management company, such as Maximum Property Solutions.
Our team of experienced professionals can handle all aspects of your rental property, allowing you to focus on other priorities with peace of mind. Contact us today!
