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. Credit

    1. A contractual agreement in which a borrower receives something ...
  4. Impaired Credit

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

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

    Save $30,000 For A Home Down Payment In 5 Months

    Before tackling mortgage rates, home maintenance costs and utilities, every home buyer must first gather the funds for a mortgage loan down payment.
  7. 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.
  8. 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 ...
  9. 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.
  10. Home & Auto

    Mortgage Guide For Thirty-Somethings

    Five things to consider before you sign on the dotted line for a mortgage.

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center