Table of Contents

Straw Buyer: Definition, Purposes, Examples, and Legality

By

澳洲幸运5官方开奖结果体彩网:James Chen

Updated March 24, 2024

Reviewed by

JeFreda R. Brown

Fact checked by

Amanda Jackson

What Is a Straw Buyer?

A straw buyer is a person who purchases goods or property on behalf of another person, concealing the identity of the real buyer. The straw buyer then hands over the purchased goꦯods, so🦩metimes in return for a kickback.

Using a straw buyer is generally illegal when the transaction involves fraud, criminal activity, or a purc🦩hase on behalf of someone who is legally barred from making the purchase openly.

Key Takeaways

A straw buyer is a person who makes a purchase on behalf of another person.
The act is illegal if the intent is fraud or the goods are purchased for someone who is legally barred from making the purchase.
Straw buying is sometimes used when the real buyer is unable to obtain financing.

How a Straw Buyer Works

Straw buying is sometimes used in large purchases such as buying a home or a car when the real🥂 buyer is unable to obtain financing. The real buyer promises to make the payments and may compensate the straw buyer for the use of their credit.

Banks dislike the use of straw buyers. The arrangement increases the risk of default on the loan, even if the bank was unaware of the increased risk. The activity is risk💫y for straw buyers, who maﷺy be held legally responsible for a loan incurred on someone else's behalf.

Criticisms of Straw Buyers

A straw buyer can be used to pull off various complex scams. A type of 澳洲幸运5官方开奖结果体彩网:mortgage fraud can include the use of a straw buyer by real estate agents, appraisers, and mortgage brokers working together. The home is purchased in the straw buyer’s name at an inflated price and then flipped to a new buyer who is unaware tha🌟t the price has been falsely pumped up.

A developer or builder might use straw buyers when a line of credit is due to expire. The builder would use the straw buyers to inflate their property sales volume to qualജify for additional financing from a lender.

Straw buyers also may be used to secure financing from multiple lenders using the same property as collateral. Unlike legal 澳洲幸运5官方开奖结果体彩网:cross-collateralization, the lenders𓃲 are kept in the dark about the property being used to cover multiple mortgages.

Example of a Straw Buyer

🥂 A straw buyer might buy a car for a relative. Alternatively, a car dealer might use a fake buyer. In either case, the qualifications of the straw buyer are inflated or nonexistent.✅

The straw buyer gets the car and a kickback. The dea🦩ler gets the sale. The loan is never repaid, and the lender loses the loan money and the car.

How Is a Straw Buyer Used in a Real Estate Scam?

A victim of identity theft can be used unwittingly as the straw buyer in a real estate scam. The criminal uses the victim's good financial record to refinance an existing mortgage in the victim's name and gain access to the victim's home equity. This type of fraud eventually unravels but creates great inconvenience for the victim.

When Would a Straw Purchase Not Be Criminal?

Real estate speculators have been known to use straw buyers to purchase additional properties when they already have multiple mortgages and foresee difficulties getting approval for another. As long as the mortgages are repaid promptly, prosecution is unlikely. If the loan goes into default, the straw buyer and the real purchaser may face fraud charges.

Are Straw Buyers Used to Purchase Weapons?

Yes. One of the many illegal uses of straw buyers is to buy guns for people who cannot pass a background check. This crime has been committed on behalf of individual gun buyers and on a large scale for terrorists and gangs.

The Bottom Line

The use of a straw buyer is not strictly illegal if no fraud is intended. However, it is by definition a form of subterfuge that disguises the identity of a real buyer, who is typically taking on real responsibility for a debt.

Article Sources

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Alex Wang Group. "."
Frank A. Rubino. ""
Everytown for Gun Safety. ""

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