Expert Witness Assistance in Real Estate, Mortgage and Financial Fraud Scams Using a Straw-Man or Straw-Borrower
Renowned nationwide banking expert witness, former high-level banking executive, high-level banking regulator, and banking consultant to over 75 banks Don Coker explains some of the important nationwide banking industry standard policies, practices and procedures encountered in fraud scams that utilize straw-man and straw-borrower parties in real estate, mortgage, sale closing, mortgage closing, title, and financial fraud schemes.
One of the many forms that financial fraud can take is the use of a straw-man or straw-borrower as a part of the scam. This article explains some of the more common straw-man and straw-borrower techniques that I have seen in my work as an expert witness in banking, mortgage, title insurance, and closing fraud cases; and some nationwide industry standard policies, practices and procedures in the banking, lending, and closing industries that relate to these types of financial litigation.
Straw-Man and Straw-Borrower Scam Techniques
Straw-man and straw-borrower are terms that indicate either a willing conspirator that is benefitting financially for participating in a fraud scheme, or a totally fictitious person created for the sole purpose of serving in a deceptive role in a fraud scheme.
There is no limit to the number of ways that straw-men and straw-borrowers can be used in fraudulent schemes. Here are a few of the many examples that I have seen in my work as a nationwide expert witness for banking, mortgage banking, lending, and title and closing fraud cases:
● A real person who lends their name to a fraudulent real estate scheme by serving as a phony buyer of a property at an inflated price and then sells it at the direction of the con artist, who is the overall fraud perpetrator, to an unsuspecting purchaser who does not know that the previous sales price was inflated.
● In the above-cited example, the con artist may have the straw-man convey the property to the con artist who will then sell it to an unsuspecting third party
● In the above-cited example, the straw-man likely would also serve as a straw-borrower in the scheme to accomplish the phony sale.
● A con artist convinces a straw-man to serve as a phony buyer and then convey the property to the con artist who then resells it based upon the inflated phony price. The straw-man is paid a relatively small fee.
● A con artist recruits straw-borrowers to take title to a property by a quit claim deed and then apply for a home equity loan, the proceeds of which then would be passed back to the con artist. The straw-man is paid a fee.
● The quit claim deeds used in straw-man schemes often are forged or otherwise fraudulent.
● It is not unusual for a con artist to include as a part of the scam inflating the income, pay stubs, W-2s, employment, assets, debts, financial statements, tax returns, and intention to occupy the property in order to obtain a larger mortgage than would otherwise be justified, and sometimes obtaining mortgages that exceed the con artist’s actual acquisition cost of the property.
Safeguards Against Straw-Man and Straw-Borrower Scams
● Know Your Customer – The Bank Secrecy Act and the USA Patriot Act require that a financial institution confirm the identity of everyone with whom it does banking business. Following this required procedure is a legal requirement as well as a nationwide banking industry standard policy and practice.
● Economic Substance – A real estate transaction should display some realistic economic substance. For example, I have seen transactions where what turned out to be a straw-buyer had an office job at a certain company and was intending to continue in that office job (without any telecommuting) yet was buying what was purported to be his new primary residence several hundred miles away.
● Verifications – The lender should carry out verifications to verify the financial details of the borrower. Any suspicious findings should be confirmed or explained, or the loan should be turned down.
● Logic and Common Sense – Much like the Economic Substance heading mentioned above, apply logic and common sense to your analysis of the overall situation. For example, is it very likely that a barista at a coffee shop actually makes enough to afford a half a million dollar house? Is it likely that a single clerical office worker who has no children and lives alone in an apartment now is buying and can afford a six-bedroom house with a pool?
These “smell test” analyses are not always accurate and determinative, but they usually are indicative of something that needs to be looked at in greater detail.
● Take preventative measures such as those outlined above.
● Be aware of the possibility of a straw-man or straw-borrower scam as it relates to the transaction you are contemplating.
● If you become involved in straw-man or straw-borrower litigation, seek competent and experienced expert witness assistance that can assist in discovery as well as in the prosecution or defense of the case.
© 2012 by Don Coker
ABOUT THE AUTHOR: Banking and Lending Expert Witness Don Coker
Expert witness and consulting services. Over 500 cases for plaintiffs & defendants nationwide, 120 testimonies, 12 courthouse settlements, all areas of banking and finance. Listed in the databases of recommended expert witnesses of both DRI and AAJ.
Clients have included numerous individuals, 75 banks, and governmental clients such as the IRS, FDIC. Employment experience includes Citicorp, Ford Credit, and entities that are now JPMorgan Chase Bank, BofA, Regions Financial, and a two-year term as a high-level governmental banking regulator.
B.A. degree from the University of Alabama. Completed postgraduate and executive education work at Alabama, the University of Houston, SMU, Spring Hill College, and the Harvard Business School. Called on by clients in 31 countries for work involving 61 countries. Widely published, often called on by the media.
Copyright Don Coker
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.