Straw buyers in real estate represent a common form of fraud where someone convinces someone else with good credit to act as a “straw buyer”. These are often very hard to spot. Lenders, brokers, and real estate professionals of all kinds have been fooled, primarily because straw buyers work very hard to look like real buyers. Their documents look right, they have a social insurance number, an address… everything on paper makes them look like a real buyer.
How can you spot straw buyers in real estate? Often, straw buyers are tricked into believing they will not be responsible for the mortgage payments. They may be told that they’ll get a cut of the sale profits if they participate. Sometimes straw buyers are willing participants in real estate schemes, with criminal intent or not, but it’s always illegal.
Fraudsters use straw buyers in property transactions for several reasons, including:
- Fraud, such as constantly flipping a home to falsely appreciate the value.
- Hiding the property from the government for tax reasons.
- Using the home for illegal activities, such as marijuana grow-ops or meth labs.
What is a straw buyer in real estate? Here are some common signs of real estate transactions involving straw buyers:
- The sale documents list the selling price way too high.
- A lot of flipping over a short period at increasingly higher prices.
- Inflated appraisal.
- Misrepresentation of property characteristics or purpose.
- Multiple-unit property presented as single dwelling, or having fewer units.
- Misrepresenting a buyer’s intention to live in the property.
- Rental property represented as owner-occupied.
The most common straw buyer scenario is Person A wants to buy a property and convinces Person B to act as the buyer to obtain terms that Person A couldn’t get.
Sometimes straw buyers are victims of identity theft and have no idea they’re a straw buyer! In this scenario, Person A steals B’s identity, and forges all of their information on the purchase and loan papers. There are a number of ways to prevent identify theft you can find online here: https://www.ontario.ca/page/how-avoid-or-recover-identity-theft.
In any scenario, it pays to do your due diligence as a real estate sales professional in order to avoid any transactions involving straw buyers. It begins by educating yourself to spot the signs of a straw buyer scheme. You also need to have access to the right tools and technology to quickly and efficiently identify real estate fraud as early as possible in the application process.
If you are not already a subscriber, then you may not be aware of the powerful suite of tools and technology available through GeoWarehouse.
Visit www.geowarehouse.ca today to learn how you can identify straw buyers in real estate.