I asked Sam about the property and he said the mortgage was for $300,000 but the current market value was only $230,000. As we discussed the problem further, it became apparent that Sam was not on the deed of the property but was personally responsible for the entire mortgage!

A close personal friend of Sam had asked him to take the mortgage out in his name and his friend would pay Sam $3,000 for use of his credit. While Sam's friend didn't intend to defraud Sam, this scam of using another person's credit to buy a property is called using a "Straw Buyer" to purchase a property. It is one of the most common types of mortgage scams and has resulted in thousands of people spending tens-of-thousands of years in jail and paying millions of dollars in fines.

Unwittingly, Sam committed mortgage fraud when applying for the mortgage because the lender has a questionnaire that asked if it would be Sam's primary residence along with other financial questions that Sam undoubtedly falsified - or the mortgage broker did to have Sam qualify for the loan. Sam, like many unsuspecting individuals are innocent people with good credit, looking to make some money. However, the law looks at them as being fully involved because they knowingly took money to get the loan and committed fraud doing it. This potential fraudulent involvement by Sam is what the scam artists use to scare Sam from going to the Police - "tell on us and you are part of the problem". Unfortunately, Sam is part of the problem but he needs to "roll-over" first with the Police to get lenient treatment.

Most often, in this form of fraud, the victim (Sam) is induced by being offered $10,000 to $20,000 to use his credit and a percentage (10% - 50%) of the profits when the property is sold. In addition, the unsuspecting individuals who use their credit, would be told that the property will be rented and the rent payments will pay the mortgage payments for which they are responsible. Unfortunately, they usually find out when they go to buy a high ticket item like a car and learn that their FICO credit score is in the 400's instead of the 700's!

The scam artists usually purchase the property at one price (i.e. $200,000) and with the help of an unscrupulous mortgage broker and appraiser, resell this property to Sam for a $100,000 INSTANT profit to themselves! Unfortunately, no mortgage payments are made and the scammers go ahead and rent the property and keep the rent until the property is foreclosed and the tenants evicted by the Sheriff.

Hopefully this isn't going to happen to Sam, but if his "buddy" were to sell the property, there would be a $70,000 - $90,000 loss on the property after the mortgage is paid off. The only way to sell it is by doing a short sale, but for the lender to allow a short sale, the mortgagor (Sam) must be in foreclosure.

So the "players" in this mess are Sam, who participated without realizing the potential legal consequences and the long-term damage to his credit, Sam's friend who has little or no financial loss or credit risk at stake and can walk away at any time, and the mortgage broker who must have had to participate in this fraud to the lender. The mortgage broker probably believes that he is immune to prosecution because he just took the application, but the problem is that he is a co-conspirator who told Sam how to "properly" fill out the loan application.

The moral of this story is not to allow anyone to induce you to use your credit to purchase a property - even if they say they will put it in your name. I have seen this guise used and the Sam's knowingly signed a Quit Claim Deed at the signing of the mortgage documents to "facilitate the sale" for the scammers. If you are approached by anyone asking you to "loan your credit" for a mortgage on a property, see an attorney to make certain you have representation and the deal is not a scam.