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Carrying homeowner policy is required. Mortgage companies receive notification that a Homeowner's policy is currently in force, and notification if it is terminated. The mortgage holder would know if the policy is a homeowner or landlord policy.

OK... not to encourage anything nefarious, but... this is *easily* worked around;
An occupant owner who wants to convert to a rental, without alerting the servicer/lender by changing the hazard insurance coverage, can simply leave the owner-occupant coverage in place, and buy a separate landlord policy (perhaps even from a different insurer, to make sure there are no internal reporting screwups accidentally alerting the servicer/lender.)

This isn't a secret workaround... and the costs are not at all prohibitive (they are a fraction of the premium charged for investor rates,) which is why servicers still do curb-view driveby inspections, and use other occupany audit methods.

Cheers,
Dave
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