Straw buyers: Taking advantage of your good name

Straw buyers are people who pretend to be a legitimate buyer for a property but in reality is colluding with another person to further a mortgage scam.
You don't need to use a gun to rob a bank. Criminals can do the same with some falsified documents and a little know-how.

In the United States, the government says crooks pocket $4 billion to $6 billion a year through mortgage fraud. The FBI says 80 per cent of the cases they investigate involve industry insiders. Much of the rest falls to organized criminals.

There is no comparable data for Canada. However, industry analysts estimate hundreds of millions of dollars disappear every year through mortgage fraud.

A report issued by Criminal Intelligence Service Canada  (CISC) in November 2007, suggested strong housing markets and a heavy reliance on computer-automated underwriting and property-valuation systems to conduct mortgage transactions leave financial institutions vulnerable to mortgage fraud.

Straw buyers

You could be committing mortgage fraud without even knowing it. Perhaps an acquaintance of yours tells you he's in a financial pickle. He's found a house he really wants to buy but the bank will turn him down because of a couple of unfortunate credit card incidents. He offers you a few thousand dollars to lend your good name and credit to act as the buyer of the property. He assures you he will make the mortgage payments.

The mortgage is issued and your friend moves into the house and — you assume — makes the mortgage payments.

Signs you may be getting involved in mortgage fraud

  • Someone offers you a fee to use your name and credit information to obtain a mortgage.
  • You are encouraged to include false information on a loan application. 
  • You are asked to leave signature lines or other important areas on a loan application blank.
  • The loan amount on the mortgage is significantly higher than the value of the property.

Months go by. You lose touch with your friend. And then, one day, you are served with legal papers because you are in default of the mortgage you took out. The bank wants its money.

You can't find your "friend" — who actually may have skipped with the proceeds of the sale of the house. He may have been the "seller" of the house that you didn't realize you bought.

According to CISC, a straw buyer is "an individual who pretends to be a legitimate buyer for a property but in reality is in collusion with another criminally inclined individual to further a mortgage scam."

A straw buyer may have no idea that they are involved in fraud — or they may be an active part of a conspiracy to defraud a financial institution. They might be in it from the beginning.

Criminals use straw buyers in property transactions for several reasons, including:

  • Fraud, such as constantly flipping a home to falsely appreciate the value.
  • Hiding the property from the government for tax reasons.
  • Using the home for illegal activities, such as marijuana grow-ops or meth labs.

A report issued in 2001 listed several ways fraudsters can taint real estate transactions.


  • Overvaluation: sale documents list the selling price artificially high.
  • Flip, condo conversion: property is sold several times over a short period at progressively higher prices.
  • Inflated appraisal.
  • Misrepresentation of property characteristics or purpose.
  • Forged or altered MLS listing to increase valuation.
  • Commercial property is represented as residential.
  • Property with multiple units is represented as fewer units or a single dwelling.
  • Intent to reside: misrepresenting a buyer's intention to live in the property.
  • Rental property represented as owner-occupied.
  • Conditions not released at closing.


  • Forged or altered employment letter or employment reference.
  • Forged or altered pay stub, T4, Notice of Assessment.
  • Inflated income or tenure.
  • Misrepresentation regarding self-employment.


  • Providing forged or altered identification.
  • Non-existent individual, or alteration of personal information to avoid credit bureau.
  • Multiple unrelated borrowers.


  • Bogus gift letter: You present a letter saying you received a monetary gift that you did not receive. 
  • Borrower presents account statements that do not belong to the borrower.
  • Equity is withdrawn prior to the closing of the real estate transaction.
  • Down payment is promised or paid outside of escrow.
  • Down payment is provided by an undisclosed third party as part of a rebate, kickback or purchase.
  • Full or partial down payment is paid directly to the vendor instead of being paid in trust to a lawyer.


  • Fraudulent title transfer/ fraudulent mortgage discharge.
  • Property is not in the name of the person trying to sell it.

Source: Canadian Association of Accredited Mortgage Professionals