Straw buyers are folks who use their names, income, assets, credit, and credit scores who knowlingly agree to get a mortgage as an owner occupied property but have no intention whatsoever to live on the property and in some cases, have no intention of paying for the mortgage payment. Straw buyers are not necessarily all white collar criminals. There are straw buyers who conspire with realtors, attorneys, appraisers, title companies, and mortgage brokers to blatantly defraud the lenders by having no intention of ever paying the property back but there are straw buyers who will use their names to help a family member or friend who would not qualify without their credit and income and do it for the kindness of their heart. Unfortunately, it is totally illegal to use the straw buyer mortgage strategy and anyone who is involved in this scheme, are actually committing mortgage fraud and can get into serious trouble. Maximum penalty for mortgage fraud is 30 years in prison and there is a zero tolerance attitude from law enforcement and the justice system.
Case Scenario Of Using A Straw Buyer
A typical case of becoming a victim of being a straw buyer is when you are approached by a real estate investor who offers you money for using your name to acquire a residential mortgage loan and offers you cash in lieu of doing so. The real estate investor might not qualify for any residential mortgage loan and his intent might be to acquire the property so he or she might need you to lie and mislead the lender where you are an owner occupied mortgage loan borrower. He will direct you to which lender to apply with and you will provide all of your financial information to close on the loan. After the closing, you might be offered several thousand dollars and might be asked to quit claim your name off the deed of the home. Cases like, you will be the straw buyer and it is considered mortgage fraud. In the event if the mortgage loan ever defaults, everyone involved in this transaction will get busted, including the straw buyer.
A more popular case of straw buyer transactions that happen often is when a relative of the buyer of the home uses their name to qualify for a residential mortgage loan because the actual buyer might not qualify due to not having waiting out the waiting period of a bankruptcy or foreclosure, not qualifying for debt to income ratios, or prior bad credit. For example, a home buyer might not qualify for a mortgage loan and might ask his parents to act as a straw buyer and apply as an owner occupied primary residence home for the sibling. Most parents will do whatever possible to help their kids but unfortunately, this is a case of mortgage fraud and both parties can get into a boatload of trouble. The court system has no sympathy for those who commit mortgage fraud and I can guarantee you that every single case will be investigated. It is not worth using the straw buyer mortgage strategy when applying for a residential mortgage loan.