Have you ever had a client come into your office to retain your services–someone you’ve never worked with before; you’re not sure how they were referred; and the talking and negotiating is being done by someone other than the individual who is buying the property? If so, this could be a sign of straw buyer fraud.
Straw buyer fraud is when a fraudster persuades an individual with good credit to use their name on a mortgage, on behalf of the fraudster, in return for cash or a cut of the sale proceeds when the property is sold. In these types of fraud, the value of the home is often inflated in order to obtain the maximum amount of mortgage proceeds. The fraudsters promise the purchaser–also known as a straw buyer–that they will have no responsibility for mortgage payments, taxes, insurance, etc. and they will soon make a lot of money.
Unfortunately, that day never comes. The fraudsters pay nothing and soon the straw buyer is receiving notices of foreclosure or power of sale. Since they took out the mortgage, they are responsible for paying it back even though they never benefitted from the proceeds. They didn’t set foot in the home or even see it, for that matter. And now their good credit is ruined.
So how can you protect yourself?
Many of the same the fraud flags are present with straw buyer fraud that exists with title fraud; quick closings, private agreements of purchase and sale and little equity. You may notice that a third person is doing all the talking and has more knowledge about the deal than the person claiming to be the borrower. If this is the case, ask a few questions of your client without the other person in the room to ensure they are fully aware of the transaction and are able to provide you with their instructions.
If you are ever presented with a deal that might be too good to be true–like being offered thousands of dollars to sign a few papers–it probably is!