This is gonna be long. I apologize in advance…
A straw buyer is a fake buyer. The guy is lured in to being a ‘real estate investor’ by someone offering to “use their credit” to buy houses. They don’t have to do any of the research, they just sign some paperwork, pay approx. $5K, and at closing they receive a check for some ‘up front incentive’.
I’m trivializing it, of course, but I see it all the time in downtown Atlanta. That’s why I don’t buy down there. A certain number of payments are allegedly kept in escrow, along with the rehab costs. The seller even says they’ll find a buyer for the new investor.
The buyer is now suppose to depend on the attorney to give him the escrow money as its needed for repairs or mortgage payments - kind of like hard money where you get paid after you’ve done the work and paid out of pocket.
The money isn’t really in escrow. The buyer and the attorney are in cahoots (sp?) and dance off with the money. Like I said, the appraiser is in on it as well, and gives a high appraisal. If you can still get in touch with the seller, he tells you that he’s working on it (he probably answered the phone because he didn’t recognize your number. Otherwise you’ll get voicemail forever).
Remember when Judd said, “we actually considered buying a house across the street from it, but the #'s are REALLY weird. the house next to it sold in the 3’s while another one 2 doors down sold in the mid 1’s. similiar houses”
That’s because of all the fraud. Straw buyers are duped into letting someone else use their credit to buy the house, it’s overleveraged, and then it goes to foreclosure while the seller, attorney, lender, and appraiser make off like bandits. Then they either declare bankruptcy (this was before the new laws) or you never see them again…or they wind up in prison.
Fraud down here is rampant in downtown Atlanta. Most lenders blacklist several zip codes and neighborhoods because of it and won’t lend there unless the comps show that the houses have been sold using a Realtor (I’m not making this stuff up - I got my info from a review appraiser). They have very strict guidelines and only specific Realtors, appraisers, and attorneys that they’ll use to lend on a house. Everything has to be done the lender’s way 100% or it’s no deal.
Also, my review appraiser told me that he use to have a lender contact him and tell him that he needed a house to appraise for a certain amount. Kind of like asking him to appraise an outhouse for a million dollars. When he said he couldn’t do it, the lender replied, “That’s ok. I’ve got plenty of crooked appraisers who’ll do it for me. I just like to call you once in a while to get some legit appraisals done in order to keep the Dept of Banking and Finance off my back.”
Yikes! I wasn’t kidding when I said that some investors take pictures of the facade of a house to show to a lender that the rehab work has been done and there’s nothing behind the front…just one solid wall of fake house. Othertimes they’ll have appliances and fixtures sitting in a room (like toilets, tubs, and pedestal sinks) to make it look like they’ve been installed and they’re just sitting on the floor - no plumbing no nothing.
On my blog I rant a lot about seeing too many investors on the 5 o’clock news for this stuff and it’s just going to get worse.
Big Cheese