There are many types of mortgage fraud. One of them is the use of straw borrowers, also known as a straw-man. The term straw-man originated in ancient Rome and is based on the theory that every person has two personas—one of them is as a real human being, and the other is their legal personality.
The borrower can be a family member, friend, or stranger who is asked to take out a mortgage by another who would not qualify for a loan due to bad credit or other disqualifying factors. The straw borrowers knowingly use their credit score, social security number, and other personal identifications to secure a loan, putting them at risk. Sometimes there is a payment for this service. A con man may approach an unknowing victim, saying he is acting on behalf of many investors and that the group is looking for another investor. He tells the potential victim that the investors have a cash flow problem as their money is being used in other deals and asks the person to take out a mortgage to purchase another house. This person is told that he will profit when the house is sold in the future. Con men sometimes use the ploy of convincing the victim that he or she will be helping someone down on their luck to buy a home. The victim also serves the purpose of taking the attention off the real crime and the criminal who is committing mortgage fraud. A fictitious identity can also be created to run the scam.
Straw borrower scammers tell the victim taking out the loan that he or she will not be responsible for the payments. This is false. The person who obtains the mortgage is responsible. If the scammer defaults on the payments and the home goes into foreclosure, it is the borrower whose name and credit history are destroyed. The borrower also risks going to prison as identity misrepresentation on certain types of mortgages is a criminal offense. Using straw borrowers has the potential to work if both the buyer and the person hiring the straw-borrower are honest and in total agreement about who is ultimately responsible for the loan. But usually, it is not a great idea. Banks frown upon it because the arrangement creates higher than usual risk of default, and there is always the possibility that one partner will renege on his part of the bargain. Straw-borrower scammers are con men who are committing one of the types of mortgage fraud. They often create inflated information by altering tax returns, pay stubs, and other financial documents in order to qualify for a bigger loan.
Be aware if you are approached with an offer that doesn’t make sense or sounds too good to be true, such as a clerk at the supermarket asking you to help him buy a million dollar home. Think about it, can this person really afford such a venture? Most likely this is not the case and the person is actually committing mortgage fraud. If your guts tell you that something isn’t right, listen to yourself and be cautious. Never sign documents without knowing exactly what they are. Mortgage fraud is a serious crime.
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