What Is A Straw Home Buyer And Are Straw Purchases Always Fraud?

This BLOG On What Is A Straw Home Buyer And Are Straw Purchases Always Fraud Was UPDATED On April 4th, 2019

Straw home buyers are folks who use their names, income, assets, credit, and credit scores for another home buyer.

  • The reason they do this is that the real buyer does not qualify for a mortgage loan
  • Straw Buyer is a person who knowingly agree to get a mortgage as an owner-occupied property but have no intention whatsoever to live on the property
  • In some cases, they 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 lenders by having no intention of ever paying the property back
  • 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 home buyer mortgage strategy
  • 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
  • There is a zero tolerance attitude from law enforcement and the justice system

Mortgage Fraud is a federal crime and falls under the jurisdiction of the Federal Bureau of Investigation, U.S. Department of Housing and Urban Development, and United States Attorney.

Case Scenario Of Using A Straw Home Buyer

A typical case of becoming a victim of being a straw buyer is when someone is approached by a real estate investor who offers the straw home buyer money for using their name to acquire a residential mortgage loan. This person offers cash to the straw home buyer in lieu of using their name.

  • The real estate investor might not qualify for any residential mortgage loan and his intent might be to acquire the property
  • To accomplish this task, the investor may need the straw buyer to lie and mislead the lender where the straw buyer is the owner on paper
  • The real estate investor will direct the straw home buyer to the lender where to submit their mortgage loan application
  • The real estate investor may request the mortgage and financial documents by the straw home buyer and apply themselves
  • After the closing, straw buyers might be offered several thousand dollars
  • Straw buyers might be asked to quit claim their name off the deed of the home to the real estate investors name and/or entity 
  • The above actions is considered mortgage fraud
  • In the event if the mortgage loan ever defaults, everyone involved in this transaction will get busted, including the straw home buyer

Occupancy Fraud

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. They use this tactic because the actual buyer might not qualify due to not having waited 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 due to either credit and/or income
  • The home buyer might ask their 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
  • Every case of mortgage fraud is normally investigated 
  • It is not worth using the straw buyer mortgage strategy when applying for a residential mortgage loan

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