Not many outside the Real Estate Industry knows about a common practice that is engulfing the housing market and drive a wave of foreclosures. It is "Straw Buyer" practice...
What is a "Straw Buyer" ? It is someone who agrees to have his/hers credit (mostly good credit) used by someone else (whose credit is poor) to purchase a Real Estate property. That would make possible for some people with poor credit to secure a good loan. - Loan that otherwise would not be accessible due the poor credit.- "Straw Buyer" scam has a lot of ramifications and consequences in today troubled economy...
The "Straw Buyer" is someone who willingly participates to the scheme or could be a victim of identity theft. But never the less a "Straw Buyer" remains an illegal practice.
Earlier today, the FBI released another new report detailing fraud in financial markets, including those related to real estate. The Financial Crimes Report for Fiscal Year 2007 covers corporate fraud, securities and commodities fraud, health care fraud, mortgage fraud, insurance fraud, mass marketing fraud, and asset forfeiture/money laundering... ( read>>> More Real Estate Fraud Stats from the FBI )
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One common example:
- The players: a home owner, an accomplice (fake buyer) and inflated appraisal.
- The other player: bank who lends money to the fake buyer
How it works:
- This scam involves a home owner who sells his property to an accomplice (fake buyer). The home owner willingly participate to modify documents- - sometimes implicates a willing participation of appraisal - to help inflate the value of the house.
- The bank lends money to the fake buyer, with the proceeds going to the seller, for the house with inflated value.
- The bank is left holding a mortgage on a house that's worth about half the outstanding loan. The fake buyer disappears--and gets a cut of the profits from the seller.(?)
An other example (more benign):
- More to often this scheme takes place in a family environment... That looks at the surface as a family affair because involves member of the same family one to help the other member (with poor credit) to qualify for a loan and purchase a home. But by the law this is a fraud even if the member that still the other's credit, in order to qualify for the loan, intend to live on that property. The lender is not concerned about the justice in this case as all he really wants to have the money loaned repaid. But this is the root of the problem. Not only that a fraud took place but also the risk involved in lending the money to a wrong person (who after all can very easily default on payments - due his inability to pay)
Some other upwardly trending real estate and mortgage fraud schemes include ... read more>>>
- Dan Melson La Mesa, CA - http://activerain.com/danmelson- http://www.danmelson.com/2008/04/straw_buyer_fraud.html
- More Real Estate Fraud Stats from the FBI
- http://www.startribune.com/local/11587436.html
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Con Artist Reveals Mortage Scams : "Straw Buyer"
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I wrote this post as I was approached by some potential clients
( ironically contacting from AR blog ...!!! ) who honestly believed that using members family (first degree) could qualify and purchase a property... I explained them my point of view
on these type of "deals" and went the opposite direction!... doubt that I was to
convincing as they told me that they will take their business to somebody
else... Fine with me!
It was alarming to me to see how casual and relaxed people can be this days in finding "back alley" methods to buy properties!
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UPDATE!
The FBI and the IRS are teaming up with Nevada Attorney General Catherine Cortez Masto, state regulators and Metro Police to tackle a surge in mortgage fraud that is overwhelming Nevada authorities. The announcement of a task force is expected early next month.
READ MORE >>> http://www.affil.org/media2/affil-in-the-news/affil-in-the-news/the-las-vegas-sun
Hi Arina;
Great informative post, I thank you for sharing.
Anthony
That's some wild stuff. I haven't run into that scam yet here, but it is amazing the amount of scams out there.
Oh I have not heard about Straw Buyer for a while...what a scam though....thanks for reminding me.
I'd not heard of this. So awful that people choose to operate like that. Thanks for the info and for explaining so well how it works.
Good post. There are a whole heap of problems associated with this issue. It creates bad economical crisis'.
Interesting...thanks for sharing this. Amazing what folks come up with.
Great post Arina I have noticed you blog here alot! I'll be seing you around. Take care
Pedro Gonzalez
www.VipTopTeam.com
In a fair market, there will always be problems,. Straw Buyer are just one scam.
When ever I get approached for anything creative, I am also watching for possible fraud.
Anthony, I felt the need to share the story as I was approched for some potential client (by the way was coming from AR BLOG) who honestly believed that using members family (first degree) could qualify and purchase a property. I declined the request.
Jim, Thank you for reading and leaving a comment. Well, around here in Las Vegas it happens! an other drop to a full glass of murky water...
Bryan, Seems like this troubelt times brings out the worst in some elements. Thank you for coment.
Mara, It is good to see you here. I tried to explain in a simople way but if you liketo read more go to: http://www.danmelson.com/2008/04/straw_buyer_fraud.html
Anthony, I believe that is at least we can do... to expose the scam and let people know what is going on while the economy is going down... just because of those type of activities,
Kathy Yes, and is good to find a place to talk about it. Thank you for coming...
If you want to read more so:
You'll find more informations.
Pedro,Than you... I am glad you come by and read my blogs. Please feel free anytime. I love to have feed back from you.
Greg You absolutely right. There will always be bad practice even in a perfect economy... And there are so many others we don't still know about.
Randy ... anything taged "creative" is an open door for dubious concept. You hit te nail on the head.
For all out there who did not hear about "Straw Buyers" take the time to make an intelligent assesment:
Fortunately the FBI and state authorities have been slowly busting such rings in South Florida.
This happened on a large scale in 3 small towns South of Minneapolis. It was a developer and mortgage Co. Straw buyers were used to purchase approximately 200 properties built by the developer (PMDC) in the New Prague, New Market and Lonsdale area. Nearly $100 million in loan proceeds, PMDC received over $25 million.
"The four defendants today also acknowledged completing loan applications for the straw purchases, which included false information, executing loan documents in the names of the straw buyers, and manufacturing and providing false documentation, such as false representations of employment and false verifications of deposit, for the straw buyers for purposes of obtaining loan proceeds to purchase the properties from PMDC." Quoted from a letter from United States Department of Justice, United States Attorney's Office, District of Minnesota
Thanks for the post.
That is a very common fraud here in Atlanta, and I'm sure it still is!
Arina - Thank you for bringing attention to this situation. Many agents have no clue - especially here in NY.
Pam, What are you saying sounds like twilight zone... I know it's real (because I see it happening here in Vegas...) but It is so hard to conceive it. Thank you for the contribution to this subject.
Tchaka So are they doing here in Vegas... but not fast enough.
Thank you for coming by.
Jim
It is interesting to observe how this practice is spread over the country. Some states like Nevada, Florida, California... more than others.
The FBI and the IRS are teaming up with Nevada Attorney General Catherine Cortez Masto, state regulators and Metro Police to tackle a surge in mortgage fraud that is overwhelming Nevada authorities. The announcement of a task force is expected early next month.
READ >>> http://www.affil.org/media2/affil-in-the-news/affil-in-the-news/the-las-vegas-sun
Arina, It's frightening that there are so many scams out there...I'd never heard of this one either. Thank you for sharing information that is important to everyone.
Carole I don't know why this type of scams are "local" but theu are... Nevada led the nation in per capita foreclosures in 2007, and many analysts say the bad loans were frequently prepared fraudulently.
I am starting to worry about what is going on here... I may move to Northen California (Marin County) were my folks live. It is an other world! Yes! It is "local"
Carol, Just I said it is "local"... Not every part of the country is the same. You live in a scam free area. Less headache.
Arina, how do these people think these scams up, I can't even bring my mind to these thoughts.
Great Post. Thanks for Sharing!
Fraud hurts so many people on so many levels-it hurts us all in one way or another.
To help combat this disease, I created a group: Real Estate Fraud, Scams, and Ponzi schemes REPORT THEM HERE
http://activerain.com/groups/FraudAlert
Please feel free to post your blog there!
Aida, Thank you for the tip. I just posted in your group... Good luck and Thank you!
Thanks Arina---I am going to feature your post--I am glad that there are great agents like yourself who are trying to bring this out in the open. It seems as if the media--totally ignores it!
Aida, Thank you so much for paying me so much attention... It is not only true but disappointing also to see how many (press and even real estate professionals) push this issue under the rug.
No-one in Vegas circle of professionals would like to read my post! -:)
I love nailing people on these types of deals. I'm working on 3 cases right now. I'm supposed to give expert testimony on one next week. I can't wait.
Steve Dibert
www.mfi-miami.com