A straw buyer is someone who buys something on behalf of another person. This act is considered an illegal scam if the deal is made to commit fraud, or if a person buys something for another person who cannot legally make the purchase on his/her own.
Consider, for example, a person with good credit that secures a mortgage and buys a home for another person with poor credit. Here, the purchaser is a “straw” if he/she has no intention of ever living in the home or making mortgage payments, and the person with poor credit couldn’t legally buy the home on his/her own (because of the bad credit). The act of securing the home loan constitutes a mortgage fraud scheme and is a criminal offense.
Straw buyers that purchase goods illegally, or those parties involved in an unlawful transaction, can face criminal charges under federal or state laws. Examples of charges that a person could face include:
- substantial fines, and/or
- jail or prison terms.
Persons accused of a straw purchasing offense can challenge the accusation with a legal defense. Three common defenses include the defendant showing that he/she:
- did not have an intent to defraud,
- was subject to an unlawful search and seizure, and
- was entrapped.
Our California criminal defense attorneys will address the following in this article:
- 1. Why are these schemes called a straw purchase?
- 2. What is a straw mortgage?
- 3. Is buying a car for your child a straw purchase?
- 4. What are the potential consequences?
- 5. How can I defend myself if I am accused?
1. Why are these schemes called a straw purchase?
The word “straw” is used when describing these purchases because it refers to a scarecrow, which is made of straw.
A scarecrow is considered a fake man. Similarly, a “straw” buyer is considered a fake person because he/she is faking to be the actual person that will use a good or service being bought.
Straw purchasers are also referred to as “dummy buyers,” in reference to a ventriloquist and his/her dummy. Like a dummy, a straw buyer appears on the surface to be the real one that is talking and making decisions. However, in reality, it is the ventriloquist, or the person the straw buyer makes a purchase for, that is really running the show.
2. What is a straw mortgage?
A “straw mortgage” refers to the situation where a straw enters into real estate transactions for another person.
The typical situation is when a real estate agent or a real estate broker finds a person with good credit (i.e., the straw) to secure a mortgage loan and buy a home for a person with bad credit. The other person could be a friend of the straw, a family member, a stranger, or even a fictitious person.
Here, the agent (or sometimes mortgage brokers) gives the straw buyer an upfront payment to sign the loan application (or mortgage application) and any other homebuyer paperwork. The straw accepts the money although he/she has no intention of living in the home or making payments as the borrower of money. The act constitutes fraud since the mortgage lender has no idea of who the real buyer or homeowner is.
If the straw fails to pay on the loan, then the bank can initiate a foreclosure on the property and the straw:
- loses his/her good credit,
- usually has to declare bankruptcy, and
- faces criminal charges (e.g., real estate fraud).
These types of straw buying scams can involve:
- an agent working with appraisers to increase the price of the property being bought,
- equity skimming, or
- illegal property flipping (where the agent and homeowner resell the property at a much higher price).
3. Is buying a car for your child an illegal straw purchase?
Buying a car for a child is not necessarily an illegal straw purchase. It is, though, a straw purchase because the adult is buying the auto on behalf of the child.
But the act can take the form of a legal gift if the parent simply pays for the car on behalf of the child and then hands it over out of generosity.
Further, the act is perfectly legal in nature if the parent (or the straw with good credit) co-signs a car loan with the child and agrees to cover the loan amount or take over loan payments in the event that the child defaults.
The act, though, could rise to a crime if the parent:
- assumes a car loan for a child (usually with poor credit), and
- does not inform the loan agency that the child will be in charge of the vehicle and will be responsible for making loan payments.
A criminal offense could also take place if the parent uses someone else’s personal information to secure a loan for the purchase of the car.
4. What are the potential consequences?
Illegal straw purchases can result in criminal charges under federal or state laws.
Examples of crimes that a person could face for entering into these fraud rings include:
Convictions under these laws could lead to either misdemeanor or felony charges.
Further, guilty charges could lead to:
- substantial fines, and/or
- prison or jail time.
For example, a person guilty of wire fraud under federal law will face:
- a fine, and/or
- imprisonment for up to 20 years.1
A person convicted of mail fraud under federal law will face:
5. How can I defend myself if I am accused?
Criminal defense attorneys draw upon several legal strategies to help clients defend against criminal charges involving illegal straw purchases. A few include showing that:
- the accused did not have an intent to defraud,
- the police conducted an unlawful search and seizure, and
- the defendant was subject to entrapment.
5.1 No Intent to defraud
A person is typically only guilty of an illegal straw buying scheme if he/she acts with an intent to defraud. This means an intent to trick or deceive a person. A defense, then, is for an accused to show that he/she did not act with this aim.
5.2 Unlawful search and seizure
Police cannot conduct a lawful search, or legally seize an item, unless they have a valid search warrant. If no warrant, then they have to have a legal excuse for not having one. Therefore, a defendant can always raise the defense that authorities:
- conducted a search or seizure without a warrant, and
- did not have a valid excuse for not having one.
Entrapment is a strong defense when authorities arrest a person after an undercover sting. The defense asserts that police lured or coaxed the accused into committing a crime. Note, though, that the defense only works if the defendant can show that he/she only committed an offense because of the luring or the entrapment.
For additional help…
For additional guidance or to discuss your case with a criminal defense attorney, we invite you to contact our law firm at the Shouse Law Group.
- 18 USC 1341.
- 18 USC 1343.