Gray area

[stocdavw]

A `friend` of mine has asked a hypothetical question of me and I`m not sure he believed my answer. I have promised him that I would post it here so he could see a few comments from a few different people. Here is the question: Suppose a person owned two properties, one with a CMHC insured mortgage on it. His initial intention was to move in to the second property (insured), but plans changed. Instead, he remains in property 1 and rents out property 2(insured). Are there any potential consequences from doing this? What should he do now?

 

[Dan_Eisenhauer]

The answer would depend on what your friend`s true intent was at the outset. As you probably know, stating you are going to live in property "B", when you know that is a false statement is fraudulent, and could result in criminal charges being brought against the person carrying out the fraud.
If your friend really did intend to move into "B", but circumstances changed, then no fraud was involved. However, your friend better be able to document the reason for the change if the lender ever caught wind of it.

From your question, I sense that your friend is considering doing this, and that it is not a done deal. If that is the case, your friend is considering perpetrating a fraud against the lender.

This is not a gray area AT ALL! Nuff said!!!

 

[DianneDachyshyn]

I think that I`m missing something. What would be the problem with renting out an insured property?

 

[stocdavw]

Property 2 was insured under the pretense that it would be owner occupied.

 

[stocdavw]

Pretty good response, Dan. I actually advised my friend to refinance property 2 and remove the CMHC insurance. That way he is completely out of the gray regardless of original intentions. Is there any reason why he shouldn`t use the same financial institution? I can`t think of any, but it came up.

 

[GarthChapman]

QUOTE (stocdavw @ Jul 23 2008, 03:47 PM) Pretty good response, Dan. I actually advised my friend to refinance property 2 and remove the CMHC insurance. That way he is completely out of the gray regardless of original intentions. Is there any reason why he shouldn`t use the same financial institution? I can`t think of any, but it came up.

No reason at all not to use the same Lender - and good advice from you to him on that. I concur with Dan Eisenhaurer`s comments completely.