Who is the Straw Buyer?
An enitity who is used by the homeowner to qualify for a mortgage.
Straw Buyer Scheme
A homeowner is advised by a real estate professional or scammer to use the credit and/or income of an unknown, third party to qualify for a home that they normally could not afford. The straw buyer will receive a fee (usually several thousands of dollars) from the homeowner for the service of lending their credit and income to aid the homeowner with qualifying for the loan. The homeowner is then asked to execute a contract with the straw buyer that gives the straw buyer an opportunity to take full title to the property (if and when the homeowner becomes 30 days late with the mortgage payments). In most cases, the homeowner will default because the straw buyer does not contribute to the mortgage (although his income was used to help qualify the homeowner for the mortgage). In the end, the straw buyer not only gains possession of the home due to homeowner default, but the homeowner loses her initial deposit to purchase the home, the money given to the straw buyer to qualify for the home, and any and all equity in the home. The homeowner cannot afford to qualify for the home in the first place because her credit or income was too low. The fact that the homeowner is using a straw buyer to qualify for a mortgage may be indicative of the homeowner and straw buyer defrauding the lender into giving the homeowner a loan that she could not qualify for on her own. In this case, the homeowner and straw buyer may be committing mortgage fraud against the lender.
BEWARE! Are you an Innocent Straw Buyer?
Some straw buyers can be victims of mortgage and real estate fraud. Scammers have convinced unsuspecting people that straw buying is a common and legal way to invest in real estate. Scammers convince victims (innocent straw buyers) that they can lend their credit to help homeowners buy or keep their homes.The scammers convince victims that the practice of straw buying is an acceptable way to invest in real estate. In exchange for the use of the straw buyer’s credit and income, they are given a few thousand dollars and a promise that their credit will only be used for a short period of time.
Generally, the straw buyer is paired with a credit poor homeowner who has defaulted on their mortgage obligation. The straw buyer assists with a new refinance or purchase for the credit poor homeowner. The homeowner almost always defaults and the straw buyer is left with the property in their name and find themselves being sued by the homeowners for the title to the property, not to mention the cost of the loans that are in default. When the straw buyer goes to look for the scammer, he is long gone, leaving the straw buyer to fend for herself.
Straw Buyer