What Is a Straw Loan?

A person may approach you with the prospect of making a quick thousand or two if you simply agree to lend your name and sign a few papers so that person can buy a house. You would be called a so-called “straw buyer,” and you would be contributing to widespread fraud that has contributed mightily to problems that face the housing market.

Another Form of Straw Loan

A straw loan can take many forms. Let's say you cannot qualify for a mortgage, but someone approaches you with the chance to share in the quick purchase then sale of a piece of real estate. All you have to do is sign a paper, and you will be paid a nominal amount upfront. The person perpetrating the fraud then secures a loan for much more than that real estate is worth, and leaves town with the difference between the loan and what was needed to buy the property. You are left with the property, AND the monthly payment as well as the taxes and whatever is associated with the foreclosure of the property.

What Happens Next?

The perpetrator of the fraud will then approach a lender with an application for as loan. That person will impersonate you if you have allowed your name to be used on the application, and will forge your signature on the necessary papers. However, if he is using your name to allegedly buy a property for you, he will pose as your friend, but sign the documents using a fraudulent name. In both events, he will open a checking account, also in a false name, to which the excess proceeds of the loan will be transmitted. Once the transaction is concluded, he ordinarily will leave the area.

You Could Face Prosecution

Even though you had no knowledge of what the person would do with your signature, you could be arrested and held liable for contributing to the offense. This kind of activity is only possible because it 's only human nature to gravitate to the quick dollar, and not realize that this constitutes fraud. If the offer to participate is too good to be true, it probably is.

Check Your Credit Report Often

In light of the increase in these straw transactions, it is always a good idea to check your credit report frequently because your name will appear on the transaction. If you have been the victim of a straw transaction, report it to the police and contact the lending institution who may help you restore your credit.

Avoid Straw Transactions

Regardless of whether you are approached by a close friend or a passing acquaintance who asks you to engage in any form of a straw loan, don't do it. You have a great deal that you can lose, and you can be arrested for an innocent felony.