"Straw Buyer" Deals Fueling Wave of Housing Foreclosures

Real estate people have a term for the practice that, according to an article on startribune.com, is driving the current wave of foreclosures in the housing market. The Tribune cites the example of Irene Thomas, an exotic dancer, who wanted to leave that career and tie her future to the real estate market. Having been introduced to a company called Universal Mortgage Inc., located in Brooklyn Park, Minn., a suburb of the Twin Cities, Thomas signed papers that eventually put her $2.4 million in debt with 10 houses in her name. According to startribune, nine of the properties transferred to Thomas belonged to officials of Universal Mortgage.

In less than 18 months, Thomas was not able to make the payments on the houses and was facing foreclosure on all 10 properties. Most of the properties are located in north Minneapolis, an area of the Twin Cities that has been hit particularly hard by foreclosures. There have been 600 foreclosures in the area just this year.

The term used by real estate people to describe what Thomas says happened to her is "straw buyer," a practice involving inflated appraisals and sales at prices above market value, says The Tribune .

Although Thomas admits that her name is the only name on the mortgage papers and that she alone is responsible financially for the situation in which she finds herself, she blames her troubles on the deception of real estate insiders who sold houses at prices far above their actual value. According to Commission Glenn Wilson of the Minnesota Department of Commerce and quoted by startribune, a straw buyer scheme is "hard to pull off by yourself; it usually takes an appraiser, a mortgage guy, a title company, and, in some cases, the buyers are even part of the scheme."

Thomas's problems began, she says, when she met a man named Cleveland Fields outside a Minneapolis nightclub. She said he eventually introduced her to Universal Mortgage and convinced her to buy the 10 properties. He agreed to manage the properties for her. She didn't know at the time that nine of the 10 properties belonged to officers of the company. Fields denies that he introduced her to Universal. According to The Tribune , he said Thomas is trying to shift blame. "Nobody did nothing wrong or did nobody wrong," he said. "She was inexperienced and trying to get into real estate, and I was inexperienced at trying to help her to manage the properties."

There have been more problems involving Universal and other mortgage companies.

Lawrence Smith, who, with his fiancee, has lost three houses and will lose six more, summed up the situation in these words in the The Tribune article, "There's good guys and there's bad guys. There's people who are ignorant of what's going on and there's sharks."

Source:

Star Tribune, 'Straw buyer' deals fuel tidal wave of foreclosures, www.startribune.com/462/story/1236301.html