Mortgage Occupancy Fraud: The Lisa Cook Case and the Lie That Could Cost You Your Home

Occupancy fraud happens when a borrower lies on a mortgage application by stating they intend to live in a property as their primary residence, despite having no intention of actually moving in. Why would someone do this? To get more favorable loan terms. Lenders consider owner-occupied homes a safer investment. So, loans for primary residences typically have the lowest interest rates, smaller down payments, and the easiest approval standards. But making this kind of misrepresentation is illegal, and it could result in the loss of your home.

Recently, the topic of mortgage application fraud has been in the headlines because of allegations against Federal Reserve Governor Lisa Cook. Cook was accused of committing mortgage fraud by allegedly misrepresenting multiple properties, one in Atlanta and one in Michigan, as her primary residence on mortgage applications. Based on these allegations, President Trump is attempting to remove her from the Federal Reserve Board, and she's even facing a Department of Justice criminal investigation.

However, most borrowers who are suspected of committing mortgage fraud aren't criminally investigated. Federal and state prosecutors hardly ever bring charges against a single borrower for this kind of fraud. Still, the stakes are high for anyone caught lying on their mortgage application. If your lender finds out you lied about your occupancy plans, it might accelerate the loan (demand you pay off the entire remaining loan balance immediately), and you could still lose your home to foreclosure, even if you haven't missed any mortgage payments. You could also face other financial and credit consequences.

What Is Mortgage Occupancy Fraud?

Again, occupancy fraud occurs when a borrower claims they will use a property as their primary residence, but actually intends to use it for another purpose, such as renting it out, using it as a second home, or treating it as an investment.

Example. Tommy, a real estate investor, is buying a home in Boulder, Colorado. He applies for an owner-occupied mortgage and signs an affidavit at closing indicating his intent to move into the property as his primary residence. But Tommy has no plans to live in the home. Shortly after the loan closes, he rents out the property instead of moving in. Tommy has used this tactic to get a better interest rate when buying homes in the Boulder area that he uses for rental properties. That's mortgage occupancy fraud.

The reason people sometimes lie about a property being their primary residence on a mortgage application is to qualify for a more favorable interest rate and a lower down payment. Primary residences also have looser underwriting standards than second homes or investment properties. ("Underwriting" is the process banks use to decide if you qualify for a loan.)

Why Occupancy Status Matters to Lenders

Lenders rely on occupancy status to assess the risk that the borrower will default (violate the loan terms). During a financial crisis, most people prioritize making mortgage payments on their primary residence over a second home or investment property. Occupancy fraud shifts more risk to the lender.

Key Differences: Primary Residence vs. Second Home vs. Investment Property

Occupancy Requirements for Mortgage Loans on Primary Residences

Most mortgage and deed of trust agreements for owner-occupied home loans, such as the standard Fannie Mae and Freddie Mac loan documents, have a clause requiring the borrower to move into the property as their primary residence within 60 days of the loan closing. The clause also typically requires the borrower to continue occupying the home for at least one year. At loan closing, the borrower must sign an occupancy affidavit and state they intend to reside in the property as a primary residence.

How Lenders Detect Mortgage Occupancy Fraud

Enforcement of occupancy rules has become more frequent in recent years, with lenders using a combination of modern technologies and traditional verification methods to detect occupancy fraud. According to Cotality (formerly CoreLogic), lenders detected signs of mortgage fraud, including occupancy fraud, in about 1 out of every 116 mortgage applications (roughly 0.86% nationally) during early 2025.

How Lenders Use Advanced Technologies and AI Fraud Detection

Lenders often use AI software to scan for suspicious patterns and inconsistencies in loan applications that might indicate mortgage application fraud. They also sometimes use AI to search for signs of occupancy fraud after a loan closes. Modern technologies can scrape rental listings on websites such as Zillow or Airbnb to see if the property is being offered for rent. The lender can also cross-reference borrower information (such as the borrower's mailing address) against public records (including voter registration and property tax records) to detect discrepancies that indicate the borrower doesn't live in the mortgaged property.

In addition, the lender can use various technologies to monitor social media for indications that the property is being rented out when it is supposed to be owner-occupied.

Traditional Methods to Detect Mortgage Occupancy Fraud

Lenders also sometimes use traditional methods, such as knocking on doors and talking to neighbors, to verify whether a borrower is using a property as their primary residence after a loan closes. The lender might receive a tip-off or complaint from a neighbor, tenant, or ex-spouse. Or the lender might simply ask the borrower to provide updated utility bills, driver's license, or other documentation that confirms their current address to verify whether the property is being occupied as a primary residence.

If the loan is escrowed, the lender can easily compare the borrower's mailing address on the homeowners' insurance policy to the property address. It might also review the policy to see if it includes personal property coverage or tenant coverage. Or the lender might pull the borrower's credit reports to verify their current address and check if it matches the address of the mortgaged property. The lender can also find out if the borrower has applied for a homestead exemption on the property.

The lender might also review its own servicing notes to determine if the borrower called in to change their mailing address after the loan closed.

Red Flags of Mortgage Occupancy Fraud

Lenders spot potential fraud by looking for certain warning signs. Some of the most common red flags include:

• The borrower's mailing address doesn't match the property address.
• Social media indicates the borrower doesn't live at the property.
• The home is listed for rent online.
• The homeowners' insurance policy changes to a landlord policy.
• The borrower owns another, nicer home in the same area.
• The property was purchased with tenants already living in it.
• There is an unusually long distance between the property and the borrower's workplace.

What Happens If You're Caught Lying About Occupancy?

Increased enforcement of mortgage fraud means that those who misrepresent their occupancy when getting a mortgage loan face real risks. Occupancy fraud is a federal crime. (18 U.S.C § 1014 (2025).) Under federal law, a conviction may result in fines up to $1,000,000 and a prison sentence of up to 30 years. State laws also cover mortgage fraud. But prosecutors rarely pursue isolated cases of occupancy fraud unless it is part of a larger scheme or involves a lot of money. So, most occupancy fraud investigations don't end in criminal charges.

However, while criminal prosecution due to occupancy fraud is rare, the lender has other remedies.

Accelerate the Full Balance (Call the Loan Due)

If a lender learns about occupancy fraud, it can accelerate the remaining loan balance (call it due). In almost all cases, the mortgage or deed of trust will have a clause allowing acceleration if the borrower defaults.

Initiate Foreclosure If the Borrower Can't Pay

If the borrower can't pay off the accelerated loan, the lender can foreclose, even if all of the monthly payments were made. This process means the loss of the home, as well as eviction of occupants, loss of home equity, and liability for legal fees and costs.

Civil Lawsuit Damages Are Possible

The lender may pursue a civil action to recover its financial losses, such as the difference between the interest rate it gave and what it should have charged, plus costs of investigations and legal fees. In practice, however, lenders rarely pursue separate civil damages lawsuits for occupancy fraud. Lawsuits are expensive and time-consuming. Instead, they usually just accelerate the loan and pursue foreclosure if the debt isn't repaid.

A civil suit is more likely if the fraud is large-scale, involving multiple properties, or if the borrower has substantial assets.

Report the Default and Foreclosure to the Credit Bureaus

Instances of foreclosure and default go on credit reports. These notations remain on credit reports for seven years.

Bar the Borrower From Getting Future Loans

Borrowers who commit occupancy fraud can be flagged in industry databases, making future mortgage approvals difficult if not impossible.

You Might Have to Requalify for Your Mortgage

If your lender discovers occupancy fraud, it could choose to re-underwrite the loan. In this situation, you'll need to undergo the loan approval process again, but under stricter requirements. Instead of owner-occupied loan terms, you'll have to qualify for a second home or investment property loan. That usually means you'll have to prove a higher income, make a larger down payment, and pay a higher interest rate. If you're approved, the lender will probably charge you a higher interest rate retroactively. And if you can't meet the tougher requirements, the lender may call the entire loan due, leading to foreclosure if you can't pay it off.

You could try to refinance the loan with another lender, but that won't be easy if you're blacklisted and your credit is bad.

Exceptions to the Mortgage Occupancy Rule

Importantly, most mortgage occupancy clauses specify that the occupancy requirement applies unless the lender gives its consent (and waives this requirement) or the borrower faces extenuating circumstances beyond their control.

Lender Can Waive the Mortgage Occupancy Rule

The lender can choose to waive the mortgage occupancy rule in certain circumstances, such as when the borrower is providing housing for a handicapped or disabled adult child or for elderly parents lacking income. But these circumstances must be disclosed upfront to the lender.

Extenuating Circumstances

If your circumstances change, you might not be required to live in the property as your primary residence. Or it might be acceptable if you apply for multiple owner-occupant mortgages within a relatively short period. For example, say a borrower signs a mortgage contract for a property they claim will be their primary residence. However, shortly after the loan closes, a job change forces the borrower to move out of state. In that situation, the borrower may apply for another mortgage for a primary residence in their new location if they disclose the circumstances to both lenders.

Other common examples of life changes that might prevent a borrower from occupying a property as their primary residence include events such as a death in the family or divorce. If this kind of change happens, borrowers can often qualify for an exception to the occupancy requirement by properly disclosing the circumstances.

How to Disclose Changes in Occupancy to Your Lender

If your situation honestly changes, promptly notify your lender in writing (send the lender a "letter of explanation") and keep a copy for your records. This approach helps lenders distinguish a legitimate life change from fraud. Again, most lenders expect borrowers to move in within 60 days and occupy the mortgaged property for one year or more. If you never move in or move out before this period expires without disclosing the reason to the lender, it might trigger an investigation into occupancy fraud.

Generally, living in the property as a primary residence for more than one year is sufficient to prove your original intent to occupy the home. But if you want to move out after this time frame passes, it's still a good idea to notify the mortgage lender to ensure you don't accidentally commit occupancy fraud.

How Is Mortgage Occupancy Fraud Proven?

To establish occupancy fraud, the lender must show that you knowingly and willfully lied on your mortgage application about your intention to use the property as a primary residence when applying for the loan. A genuine change in life circumstances (like a job transfer or divorce after closing) isn't occupancy fraud if you legitimately intended to live in the property, so long as you communicate the change to the lender.

But if you never intended to occupy the home as your primary residence and made the statement solely to get better loan terms, that constitutes mortgage application fraud.

Did Lisa Cook Commit Mortgage Fraud?

There is no direct evidence supporting claims that Cook committed mortgage fraud. In fact, several media outlets have found that Cook stated in her loan documentation that her Atlanta property was to be used as a vacation home, not a primary residence. Also, county records show that she never claimed a homestead exemption on the property.

An appeals court ruled that Cook could remain on the Fed Board, and the President asked the U.S. Supreme Court for an order to remove her from her position as a Fed Governor. The U.S. Supreme Court responded by saying it will wait to hear oral arguments early next year before making a decision on the President's bid to immediately fire Cook, allowing her to remain on the job in the meantime.

How to Avoid Occupancy Fraud

Lying on a mortgage application is a bad idea, which carries serious financial and legal risks for borrowers. You should always truthfully state your occupancy intentions when you apply for a mortgage loan.

Life circumstances can change, and if they do, communicating promptly and honestly about that change with your lender can help avoid issues and accusations of fraud. Again, should your plans change, notify the lender in writing and keep detailed records showing why your circumstances have changed. Failing to keep the lender informed can be construed as misrepresentation, potentially leading to loan default, acceleration, and accusations of occupancy fraud.

When to Talk to a Lawyer

If you're applying for a mortgage and have questions about occupancy requirements or are uncertain about which type of loan is right for your situation, start by discussing your concerns with your lender. For more complex situations, such as a sudden change in your residency plans or if you're unsure about how the rules apply to you, consider talking to a real estate attorney or a foreclosure lawyer to get advice specific to your situation.