Mortgage Fraud “Straw Man” Scam Growing in Popularity

Mortgage fraud scheme cons innocent victims out of their money

The real estate boom of the last few years has spawned a number of new home lending scams. Homeowners are earning equity in their homes, sellers are earning tremendous profits, and some unscrupulous individuals are using the booming market to take advantage of other people.

One popular example of mortgage fraud that is currently in use is the “straw man” scam. In this scenario, someone with a good credit score

whom we’ll call (Mr. Good Credit) and the ability to secure a loan is approached by someone claiming to be a representative of a group of investors. The representative explains the he has located an underpriced house that would make a great investment opportunity, but he cannot buy the house because his money is tied up in other deals. He then tells Mr. Good Credit that he will pay him several thousand dollars in cash if he will apply for a loan to buy this piece of property using his own good credit. The “investor” assures Mr. Good Credit that his partners will actually make the payments on the property; they only need Mr. Good Credit to apply for the loan. At some agreed-upon time in the future, the home will be sold, and all parties, including Mr. Good Credit, will share in the profits.

This sounds like a can’t-miss opportunity for our friend Mr. Good Credit, who sees this as a change to make some money for doing nothing but filling out a few forms. Here is where our friend with the good finances becomes the latest victim of mortgage fraud. The “investor” doesn’t need to purchase the home; he and his partners already own it. And it isn’t a great piece of investment property; it’s a run down home in a bad neighborhood. In fact, it may not be anything more than a vacant lot. The “investor” and his partners have worked with an appraiser to concoct a fraudulent appraisal that makes the lot or house seem like it’s worth more than it actually is. They will work with the crooked appraiser and a crooked lender to sell this overpriced home to Mr. Good Credit, who thinks he is fronting for an investment group.

Mr. Good Credit does his part and signs the mortgage agreement. He now owns a piece of property that is worth much less than he has agreed to pay for it. What about the “investors” who are going to make the payments? They just sold the property to Mr. Good Credit and they are pocketing the money. In fact, they probably won’t even pay our friend the few thousand dollars they promised him for participating in the deal.

Mr. Good Credit has applied for a loan under false circumstances, and in doing so, he has broken the law. So have the “investors”, but they have probably left town to do the same thing elsewhere. And Mr. Good credit won’t go by that name much longer, because he now owes payments on his worthless piece of property, and the lender will expect him to pay them.

This sort of mortgage fraud is perpetrated daily, and the criminals who do this have no trouble finding victims. If someone offers you a real estate deal that offers you the chance to make money by signing your name to loan documents for a piece of property you have no interest in buying, be suspicious. As with all things, if it sounds too good to be true, it probably is too good to be true.