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Wednesday, October 24, 2007

Mortgage Fraud - Straw Buyers

A common Mortgage Scam utilized is called the "Straw Buyer". A "Straw buyer" means someone is used to obtain financing under the false claim to intend to live in the property they are purchasing. In most cases the fake buyer is given a lump sum to pretend to purchase the home in order for someone else to live in. In some cases the straw buyer is not even aware that their name is being used for the purchase of a home. The most common usage occurs when a borrower is unable to qualify for a loan on their own, so they instead find a friend, family member or acquaintance to qualify for them. In general the straw buyer will have stellar credit, an abundance of assets, and an income to substantiate the payment on said purchase. After the purchase transaction is completed the straw buyer's name may be removed from title, while someone Else's name is placed in county records as the owner. It is a crime to state on an application that you intend to live in a home when in fact you have no intention of doing so. The scheme works when the actual intended occupant makes the payment in a timely manner and satisfies the debt obligation. Many mortgages are assumable, and in the long run, the actual occupant may be able to take over the debt in their name. On the flip side, if the actual occupant defaults, the original purchaser, or straw buyer, is responsible for the debt and could face litigation for their part in the scheme.

The chart below from The U.S. Department of Treasury demonstrates the rise in Straw Buyer suspicion as demonstrated in their Suspicious Activity Reports (SAR)


In a recent case involving a Newport Beach resident the offender plead guilty to mortgage fraud involving over $2.7 million in losses to lenders and HUD. The offender admitted to participating in multiple transactions between 1995 and 2001. The offender could face jail time if the court decides to put him behind bars.

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