What is a Straw Buyer?

Straw buying involves another party making a purchase of property, automobile and other items on behalf of the real buyer. A straw buyer is that individual, usually an agent that agrees to make a purchase of goods for the real buyer. 

Once the straw buyer makes the purchase, the goods are transferred to the real buyer. Individuals who are unwilling to make purchase of certain items themselves make use of straw buyers. Although, straw buying is not an illegal act in itself but there are cases where it is used in fraud transactions which makes it illegal.

How Does Straw Buying Work? 

Real estate properties, mortgage purchase, and purchase of automobiles are common transactions where a straw buying can occur. In this case, an agent or an individual agrees to make purchase of the item on behalf of the real buyer and thereafter transfers the item.

 A real buyer of goods might be unwilling to make a purchase directly for a number of reasons. If the individual has previously been involved in fraudulent transactions and has been blacklisted, a straw buyer might be used. Also, if the underlying motion for the purchase of for fraud and the real buyer wants to keep his hands clean, a straw buyer can be used.

Different Types of Straw Buyer Schemes

There are different schemes that individuals use straw buying for, they are mostly fraud schemes and scams. This can occur in the real estate or mortgage industry. The straw buyer incurs all the risks of the transaction, especially if they are unaware about the details of the scheme. For instance, a real buyer might fail to disclose his real intention or misinform the straw buyer. 

Some real estate agents and mortgage brokers also use straw buying to accumulate illegal gains during property sale. For instance, when a property is being purchased using the straw buyer's name, the agent or broker might inflate the price of the property just to enable them get more financing than they need, thereby making illicit gains. 

Different situations can warrant the use of a straw buyer. If the real buyer has a poor credit rating and unable to secure financing for the property, a straw buyer can be used. A builder who wants to gain additional financing than what is needed can use a straw buyer. Also, individuals use straw buyers to access money from many creditors using the same asset or property as the collateral.