Haha, straw buyers are everywhere!  I've worked in real estate, in car sales, and in all sorts of other sales, and if there's a contant thread that ties them all together, it's the straw buyer.  The guy that sends his mom in to be the "primary driver" of the car he can't really afford.  Or the uncle who's trying to buy a house that his niece will actually be paying for.  And consumers blame the lenders,  brokers, and mortgage companies for their foreclosures.  Maybe they should look at some of their own borrowing practices.  

These jacklegs have killed a couple of neighborhoods in Charlotte.  And then folks act surprised that it's bad...

You stated "Why is this illegal if the mortgage gets paid? Because of RISK posed to the lender."  It may be a technical issue, but the "legality" of any fraud or scheme is not based on RISK posed to the lender.  Fraud can be civil or criminal.  In the civil sense, if there's no harm, there's no case.  In the criminal arena, fraud is deception made for personal gain and comes in a lot of flavors.  In the mortgage sense, signing an application or otherwise knowingly making false statements to profit from your deception is fraud...and yes, it does increase risk to the lender.  But it's important to keep in mind that RISK alone is something lenders assume with every loan and some are riskier than others.  Risk doesn't make or create fraud...lying and deception do.

Ken, Great post!  I hope this would be a feature.  You really explained it quite well

Right, Jason, you are right and that is, indeed, the entire paragraph. For the simplistic minds of some people who don't consider "a little white lie" to be any big deal I started with the explanation of why lying on a mortgage application is a problem. You and I are bright enough to know that lying is lying and there really doesn't need to be any further discussion. But after having taught mortgage fraud classes and spoken at events I've heard the questions. Trust me, they needed that statement about risk because they aren't all as bright and moral as we. Honestly, I don't know how many people who have heard me say "it's mortgage fraud to lie on your application" immediately raise their hands and ask, "But why is that fraud? Who does it hurt?" Thus the first sentence following the "why".

Thanks for your comment!

Ken.  Gotcha.  Thanks for the follow up.  Mortgage fraud is a huge problem, so I'm glad to see your comments on the topic!

Good points about a straw buyer, I remember the first time I had heard the phrase.

Ken,

Great post! There are situations in our state(PA) when straw buyers are legitimate. In cases where the identity of the actual purchaser may be prejudiced by the seller who may be unwilling to sell to a specific individual. Most of these transactions do not involve financing, however. Thanks,   Fran

Really informative and very timely thanks for posting that.

Ken,

Great article!

When I first started working in real estate, an "investor" tried to get me to find him properties to do this exact thing. To make matters worse, he wanted enough "equity" in the property so he could "cash-out" at least $70,000. on each deal. The gall!!! Unbelievable!!!

Just a word of warning, these type of people look for new agents. They are con artists. They use cousins, brothers, sisters, etc. They also protest in some cases to have their own "banks" and pathetic bogus letter-head with a ficticious mortgage lender.  Obviously, someone tried to pull this on me.  Thank heavens for a good broker!

Karen Monsour, Fort Lauderdale, FL  954-464-4194

Thanks for the "straw buyer" explanation.  Everyone should be aware the untruthfullness is fraud when it comes to signing mortgage documents.  Plain and simple.

In our market I know of an investor, a Realtor, and a Title Company owner who are now sitting in Federal prison for their schemes.

Thanks for the explanation. 

Straw purchasers were very common in the car business....the term means the same thing there, and it is just as illegal. What makes it a problem there is if payments stop coming in...how do they find the car?

Hey Ken,

That was a great article about straw buyers, very informative.

Sean Allen

This was a common thing in our market a few years back... a local police officer for one our our counties largest cities was busted at the almost top position of one of these lending schemes.  It's amazing what people will do when greed for $$$$ takes over all of their thought processes...  Keep it legal or you'll be doing time in the Federal Prision of your choice.  You'll also get a courtesy call and potentially several visits from your friendly FBI.  Hey folks, lets keep our business legal.

I have seen this done a few years back, and was not a party to the transaction but became aware of it after the fact. I was not sure the neighbor was telling the truth so I just let it go.  Pretty much the same issue.  The sister had her brother purchase a condo for her.  she pays the payment and lives there, but it was his credit and money that made the purchase according to her.  Who knows.  Nice post.

Appreciate your explanation of a straw buyer.  Truthfully, I've never seen this happen. 

Interesting post. will have to come back and digest it later.

Ibought some hay the other day for fall decoration,does that make me a Hay Buyer?

Leo I think you are okay unless you put the hay on someone else's lawn.

Thanks Ken, I can now sleep tonight....

Thank you for that defination.  I haven't heard that term but have heard of that type of scenario.  Another new thing learned by being an ActiveRain member :) Love it! 

Too funny Leo.

Just beware...they go after the new agents. They think they are smarter than we are. Just keep the scenario in mind.

Karen Monsour, Fort Lauderdale

Ken

This is a great post.  You did an excellent job of explaining the terminology and what the implications are for participating. A very enjoyable read. Congrats on your feature!  Well done.

Straw buyers exist in many forms.  People who buy alchohol or cigarettes for underage recipients are one form of straw buyer.  In Philadelphia, the DA's office is cracking down on Straw Buyers of handguns:  People with a clean record buying a gun for someone with a criminal background, that would not pass the background check requirements.  In many of these cases, the person who bought the gun ends up doing jail-time. 

Thanks for taking time to shed some light on this shady topic.

Rich - thank you for sharing some otherstraw purchases. That should help even more people "see the light".

Thanks everyone for your GREAT responses!

That is a term I had never heard before.  Thank you for explaining it.  I have heard of the scenario being done.  Sad.  I know some neighborhoods in the area that have suffered greatly from this horrible practice.  And people don't have an idea that it is WRONG!!!!  

If it sounds too good to be true then... 

Thanks for the great info...I had never heard this term and appreciate the background.

I haven't seen any of these lately. But at a prior place I worked, we had a couple. Both were averted with a lender field review of the appraisal.

I had this term thrown at me at the settlement table - a last minute change.  Since two, possibly three attorneys were involved, I wasn't going to question it.  It was a timing issue of sorts and on paper only - it was a cash deal and the real intended buyer provided the funds. 

Great job of explaining this one.

Judi I think that's only money laundering, not straw buying ;)

You guys are ALL great commentors, thank you all! 

Ken - they used the word straw - it was a 1031 exchange - if I recall correctly this ended up being a solution to the delayed settlement of the 1031 property being (a day or two).  I had nothing to do with it - and it was all decided between the attorneys so I wasn't going to challenge/argue - especially since I was primarly representing the seller (her laywer was involved too).  I've worked with two of the attorneys involved and they seemed to be on the up & up.

Ken:  I wonder how many straw buyers realize it's mortgage fraud?  I wonder if they have any idea what the penalty is for mortgage fraud?  Very good post.

Donna - from experience I know that a fair number of real estate professionals don't even realize it is illegal so it stands to reason that many straw buyers are clueless. This is one reason I posted this and as you'll see a few people may have heard the term but didn't really know what it was.