Straw Buyer

AAA

DEFINITION of 'Straw Buyer'

A person who makes a purchase on behalf of another person. A straw buyer is used when the real buyer cannot complete the transaction for some reason. It is not necessarily illegal to use a straw buyer, except where the transaction involves fraud or purchasing goods for someone who is legally barred from making the purchase themselves.

INVESTOPEDIA EXPLAINS 'Straw Buyer'

Straw buying is sometimes used in large purchases, such as buying homes and automobiles, where the real buyer has poor credit and is unable to obtain financing. The real buyer promises to make all the payments and may compensate the straw buyer for the use of his or her credit. Banks dislike the use of straw buyers because the arrangement increases the risk of default on the loan without the bank's prior knowledge of that risk. The activity is also risky for straw buyers, who may be held legally responsible for the debt they incurred on behalf of others.



RELATED TERMS
  1. Mortgage Fraud

    Intentionally falsifying information on a mortgage loan application. ...
  2. Securities Fraud

    A type of serious white-collar crime in which a person or company, ...
  3. Impaired Credit

    A deterioration in the creditworthiness of an individual or entity. ...
  4. Mortgage Suitability

    A standard to which mortgage lenders can adhere when directing ...
  5. Credit

    1. A contractual agreement in which a borrower receives something ...
  6. Commercial Real Estate Loan

    definition of a commercial real estate loan
Related Articles
  1. Credit & Loans

    4 Steps To Attaining A Mortgage

    It starts with knowing your choices as well as your price range. We show you how to get there.
  2. Home & Auto

    12 Steps To Closing A Real Estate Deal

    A long list of things needs to happen before a home becomes yours. Find out what to expect.
  3. Bonds & Fixed Income

    Profit From Mortgage Debt With MBS

    Mortgage-backed securities can offer monthly income, a fixed interest rate and even government backing.
  4. Budgeting

    Mortgages: How Much Can You Afford?

    Answering this means number-crunching as well as factoring in other considerations and expenses.
  5. Home & Auto

    Mortgage Fraud: Understanding And Avoiding It

    There are many different ways to be victimized through home ownership - learn how to identify and avoid these crimes.
  6. Home & Auto

    Real Estate Face-Off: Zillow Vs. Trulia

    Both websites help you find homes for sale, but they organize the information differently. Here's how they compare.
  7. Personal Finance

    What's a Commercial Bank?

    A commercial bank is a type of financial institution that accepts deposits, offers checking account services, makes business, personal and mortgage loans; and offers basic financial products ...
  8. Home & Auto

    Getting A Mortgage In Your 50s

    The financial considerations are different when you take out a mortgage in your 50s. Here's what you need to review as you calculate the pros and cons.
  9. Home & Auto

    Mortgage Guide For Thirty-Somethings

    Five things to consider before you sign on the dotted line for a mortgage.
  10. Credit & Loans

    Buying A House? Avoid These 7 Mistakes

    Owning your own home gives you a feeling of independence that renting can’t offer, and there are big financial benefits, too.

You May Also Like

Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  3. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  4. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  5. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  6. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
Trading Center