We bought a condo in NY in June early 2010. We moved in and within a month decided to move back to our older house due to long commute(50+ miles each way). We rented the condo out in Aug.
We have around 380K mortgage.
Since we were planning to have that as a primary residence, we got the regular primary residence loan....Since now we have rented it out, we are in violation of the terms which we realized yesterday.
Our questions:
1. Will bank "call the note"? Will they even find out?
2. We can afford to pay off the entire mortgage immediately...If we do that are we ok then? We don't really want to do that but if that makes it legally ok, we are willing to do that...
3. We will show the rental income on our taxes and not claim and interest deductions on this condo since it is now a rental property. But will IRS cause any trouble?

A lot of my friends tell me tha t this is done everyday so don't worry but my wife is really worried...
Please help

if your original intent was to use it as your primary residence.. then you should not have any problems. think of all the people renting out their homes now. i used to own a mortgage brokerage and never once did i see any call-backs due to the situtation based as you describe.

Yes we did have intention but how would we prove that?

Not to complicate your thread but, What (if any) steps have you taken to set things straight with your home owners insurance company?

I really don't have Home Owner's insurance. I have a condo and I pay monthly common charges to the HOA and they have insurance. I always and still have condo insurance on this Condo.
My only concern is that does IRS has any role to play here. I will be showing this as rental property and not claiming any deductions.
I am almost certain that the mortgage company won't find out anything as long as they keep getting paid.
My last resort which I stated in my previous posting is to pay off the loan immediately and have peace of mind but everyone keeps telling me that that is not required and is overreaction as everyone who rents a home has same "issue"

Why don't you call them and ask a hypothetical?

I agree with Broker here...based on what you describe, your original intent was to owner-occupy this condo. Did you have your old house for sale? If so, maybe this could help serve as proof that you truly intended to owner-occupy the new condo. Good luck!

This is not legal advice but as long as you are making your payment on time the investor who owns the loan COULD CARE LESS!

The whole point of your clause to occupy the property is to keep investors from lying to obtain a cheaper mortgage rate when buying.

If the banks didn't have that clause investors would try to say they occupy the property all the time for say a 4.5 interest rate instead of a 7% interest rate for an investment loan.

The lenders assess more risk when funding an investment loan because they know when times get tough the owner will let the investment go first and keep the property they live in.

Jim my real question to you is if you have 400k liquid cash to play with we need to talk.I do commercial real estate and have 100% loans for all asset types.You can leverage your cash and make some fantastic investments and still stay liquid.

Private message me for more info.

Yes I had put my previous home on sale. It was listed with a broker.