The "Straw Man"
No we're not talking the character in the Wizard of Oz played by
Ray Bolger, but the victim in a mortgage scam that is being
widely circulated throughout the Internet. Like most victims
of
any scam, the "straw man" is lured by the promise of easy money.
Typically, the schemers buy older single-family homes or work on
the conversion of an apartment building into condominiums. They
then obtain highly inflated appraisals, which far exceed the true
market value of the property. Reports of properties that cost
$30,000 have been valued at several hundred thousand. This is
done either with appraisers in cahoots with them, or using phony
offers to drive up the price of similar units.
They then find a "straw man", who is told he does not have to
invest any of his own money. He may be promised several thousand
dollars up front in order to fully convince him of their
sincerity. All he has to do to receive the money, is supply
personal information about his job, salary, driver's license and
other documentation. The schemer then runs a credit check on
the
"straw man" to see if he qualifies for a mortgage
The schemer then buys the property from himself, at the higher
value in the "straw mans" name. There is usually a mortgage for
95% of the inflated appraisal, and the "straw man" is usually
paid the up front fees upon signing the necessary papers. The
promise of the easy money is a percentage of the profit, if he
holds the title for what is promised to be a short time.
The schemer may make mortgage payments for awhile. Like a pyramid
scheme however, eventually the money coming in is not enough to
make the mortgage payments, and it falls into default with the
name of the "straw man" on the title. If the "straw man" cannot
make payments, the bank forecloses.
Default judgements will be filed against "straw men", who may
have to pay the thousands of dollars difference between the
inflated value of the property and its actual value, plus legal
costs.
There was a major fraud uncovered in New Jersey this summer that
did exactly this. They sold hundreds of properties at an
inflated value to their "straw men". While the schemers and
numerous appraisers are awaiting trial, hundreds of people,
looking for an easy score, fell prey to their scheme.
You should always be cautious of people offering the chance to
make a quick buck, especially if they promise to handle all the
details. You should hire your own lawyer whenever you purchase
property, and if an appraisal seems out of whack, get another
one done.
If you are approached to hold title to a property for a short
time, realize that like Ray Bolger, you may wind up being a
"straw man".
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Bob publishes the free weekly "Your Business" Newsletter
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