Mortgage Fraud: The “Straw Buyer” Scheme

 Posted on March 11,2015 in Fraud

Mortgage fraud became a widespread problem during the real estate boom. Though the frequency of incidents subsided after the industry's crash, mortgage fraud continues to plague the housing market in the United States. In response, several federal agencies maintain task forces to investigate, identify, and prosecute suspected fraud schemes. Their efforts lead to widespread arrests and prosecution.

Facing mortgage fraud allegations is serious and the possible consequences include imprisonment, large fines and loss of property. The stakes are high and individuals accused of these offenses should secure the services of an experienced attorney early in the process.

What is a Straw Buyer?

One common type of mortgage fraud utilizes a "straw buyer". The straw buyer purchases real estate on behalf of another person. In real estate, this chosen person is generally someone with enough credit and financial stability to successfully qualify for a mortgage loan and purchase the property. The use of a straw buyer does not automatically trigger illegal activity. It only becomes criminal when the purchase is made on behalf of someone who is legally not allowed to make the purchase for himself.

The Internal Revenue Service reported about a case involving an individual who worked as a real estate agent and mortgage broker. This person used straw buyers to submit fraudulent mortgage applications for the purposes of increasing the purchase price of residential properties. His prosecution resulted in a 42-month prison sentence and millions of dollars in restitution.

In another incident, straw buyers were used to undertake double escrow accounts. Finance companies paid out portions of the proceeds, under the belief that they were paying the straw buyer, when the money was actually being rerouted to the defendants. The prosecution in this situation resulted in a sentence of 24 months in prison, with $225,000 in restitution.

The Consequences of Mortgage Fraud

Mortgage fraud is a felony offense that is investigated by the Federal Bureau of Investigation, among other agencies. Convictions are punishable by a maximum of 30 years in prison and/or $1,000,000 in fines. Convicted individuals may also be charged with the repayment of any any financial benefits they received from the fraudulent activity. Some of the common federal laws violated in straw buyer incidents include:

• 18 USC § 1343 Fraud by wire;

• 18 USC § 1342 Fictitious name or address;

• 18 USC § 1341 Fraud or swindle by mail; and

• 18 USC § 1344 Bank fraud.

These incidents often involve two or more participants, so conspiracy is another common charge that defendants face in these situations.

Defending a mortgage fraud case can prove challenging, but a successful defense is possible. Intent is a major element of fraud. If your attorney can create reasonable doubt about your knowledge of the fraud and your intention to deceive, you may be acquitted of the charges.