For as long as mortgages have been around, there have been predators looking for easy money. As part of fraud prevention, mortgage staff should be aware of the different schemes creating a watchful eye as they complete their jobs. One of the hottest trends in mortgage schemes today is the Straw Buyer.
The Straw Buyer scheme typically involves the use of one buyer’s good credit to purchase a property which is then deeded to another, who doesn’t have good credit and couldn’t buy the house on their own. They never intend to occupy the property or to make payments and in some cases they aren’t even aware that their credit is being used for the purchase.
In these cases, the Straw Buyer is paid to cover the monthly payments and typically paid for their services and the use of their credit. Often, these cases are family or friends; however, sometimes a real estate agent or broker will be a facilitator to locate a person with good credit willing to participate. Sometimes these individuals aren’t ever aware that they are being used to buy the home or they are a fabricated identity to begin with. Regardless of who the straw buyer is, they never intend to live in the home.
That’s where the fraud starts with misrepresentation, but then the straw buyer is often pressured by the facilitator of the scheme to falsify data and that’s where it becomes illegal. The facilitator sometimes tells the straw buyer to state their income is higher or gets them to sign paperwork that is incomplete. In some cases, the facilitator will sell the property at an elevated price splitting profits with the straw buyer when it’s resold. In some cases, the facilitator and the real buyer leave the straw buyer with the payments and the straw buyer ends up in default or bankruptcy.
These red flags will help identify if your member is participating in straw buyer fraud scheme.
- Mortgage payments or fees are paid by an entity other than the borrower
- First-time home buyer, with substantial increase in housing expense
- Buyer doesn’t intend to occupy – unrealistic commute, size or condition of property, etc.
- Borrower is buying out of state, very close to current residence or out of price range.
- Power of Attorney (POA) may be used for borrower
- Recent quit claim of property
- Income, savings and/or credit patterns are inconsistent with applicant’s overall profile
- High LTV, limited reserves and/or seller-paid concessions
- Recent credit inquiries for other properties
- Inconsistent signatures throughout the file
- Borrower receiving funds out of proceeds (straw buyer is paid for their identity)
- Names added/deleted on purchase contract
- Use of gift funds for down payment and/or closing costs, minimum borrower contribution
- Sales to relative or related party
- No sales agent involved
Be a part of the fight against mortgage fraud and be aware of potential fraud schemes.