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Mortgage Fraud 101- The Straw Buyer

Sportscaster Dave Fox is a pretty popular guy.

Yesterday's article detailing his plea in abeyance for communications fraud during a real estate deal drew more traffic than I've seen since writing about Casey Serin.

More details have been revealed about Fox's case I wanted to go over. Having read some of the comments on KSL's story, I also wanted to go over what a straw buyer is in relation to mortgage fraud and why it's possible Dave Fox was a victim in this case.I have not seen the details of Dave Fox's case, but as I'm reading various articles a few things are becoming clear.1. There was only one home involved -

The Deseret News noted, "He purchased a home, which he's responsible to make all the payments for, and he got no money out of it," said attorney Jim Bradshaw.2. Fox claims he made no money - "There are people who did make money off of this transaction, but the one who was stuck with the loss was Dave Fox."3.

The nature of the plea involved intent to occupy the property - The Salt Lake Tribune reports:In court documents, Fox admitted he signed loan documents for a home he claimed he would live in when he actually anticipated a "quick re-sale as an investment." The fraud occurred in April 2006.Based on the information available, I believe Dave Fox was an unwitting victim here. What's the old joke? If you're involved in a scheme and you can't really tell who the mark is, it's probably you. That's the situation Dave Fox got into.Some people are probably wondering how someone could involved in a case like this.

Greed is part of it, but real estate deals are complex and it's actually quite easy to fall into a trap like this. Sadly, it happens all the time in straw buyer cases.What exactly is a straw buyer and how can they be used for mortgage fraud?

An old Bankrate article describes them this way-So-called "straw buyer" transactions fall into this category. Typically, a buyer with bad credit needs a stand-in with a solid financial history to purchase a home, he says. She gets somebody to fill out all the paperwork and obtain the property, then has him "quitclaim," or relinquish, the deed to her. Unfortunately for the actual buyer, he remains on the hook for the mortgage. So any problems the person with bad credit experiences end up on his previously spotless record.Once a fraudster has someone else on the hook for the mortgage, and they have control of the property by being on title, a sort of blank check is created. Sometimes the fraudster will have promised to find a buyer or renter for the home and will promise to make the payments.

A few months down the road, the straw buyer will find the payments haven't been made and their credit is damaged.That's what happened with over 100 Indiana properties last year. By using a common tie, a small group of people were able to gain the trust of their community and steal over $4o million dollars from them. The New York Times explains -The civil lawsuit, filed in June by one of the nation’s largest mortgage lenders, describes an elaborate confidence game in which Martinsville residents with good credit ratings were enlisted last year to join what they believed was a risk-free investment in Indiana real estate.

Instead, they found themselves responsible for hundreds of thousands of dollars in unpaid mortgages.“Looking back, maybe it sounded too good to be true, but everyone knew them, and my friends went to church with them, people I been knowing for 10 years,” said Timothy Jacobs, a 29-year-old worker in a fiber-optics factory who discovered recently that he owed $200,000 on two houses in Indiana. “They said they’d be responsible for everything. Now everyone’s probably going to end up filing for bankruptcy.”

Sometimes the straw buyer is simply used as a stand-in to make sure a loan closes for someone else who couldn't qualify for the mortgage. Yesterday, in Sacramento, four people were indicted for such a scheme-Four Sacramento area men have been indicted by a federal grand jury on charges of bank fraud and conspiracy to launder money in connection with what prosecutors are calling a mortgage fraud scheme involving at least 19 homes with loans of more than $8 million.The indictment alleges that the purpose of the scheme was to ensure that the home purchase transactions closed, so that defendants would receive substantial loan broker commissions and illegal kickbacks from real estate sales commissions.

The straw buyer may willingly and knowingly participate for a cut of the action. Other times they are misled into the transaction while being compensated. Still other times, they are just used. It all depends on how the fraud organizer is getting paid.As far as Dave Fox is concerned, if what he's telling the media is true and he only had one house in this transaction, he is quite likely the victim here. It appears he was the mark in a house flipping scam. Fox paid too much for a home, admitted to a felony charge and quite possibly ruined his career. The full consequences of his actions will take a long time to play out.

This Article is to be credited to a wonderful Real Estate Expert in Utah who has demonstrated his understanding of the Market transitions that we are facing today:
Nigel Swaby

1 comment:

Anonymous said...

Wow Robert, this post looks exactly like the post I made this morning on my site.

I sent you an email. Please respond.