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. Realtor Property Resource (RPR)

    A National Association of Realtors member benefit providing realtors ...
Related Articles
  1. 4 Steps To Attaining A Mortgage
    Credit & Loans

    4 Steps To Attaining A Mortgage

  2. 12 Steps To Closing A Real Estate Deal
    Home & Auto

    12 Steps To Closing A Real Estate Deal

  3. Profit From Mortgage Debt With MBS
    Bonds & Fixed Income

    Profit From Mortgage Debt With MBS

  4. Mortgages: How Much Can You Afford?
    Budgeting

    Mortgages: How Much Can You Afford?

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center