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Education, Misc

December 02, 2018

Straw Man

Word of the day

Straw Man

One who purchases property for another so as to conceal the identity of the real purchaser; a dummy purchaser; a nominee; a front.

At one time, it was necessary for an owner who wanted to change a title to joint tenancy from severalty to convey the property to a straw man, who would then convey it back to the owner and joint tenant. Many states no longer require that the joint tenancy be created at the same time by one and the same instrument. Thus, an owner can convey to himself and another party as joint tenants, or convey to herself and a spouse as tenants by the entirety without using a straw man.

Where several tracts of land are being assembled for development, confidentiality may be important—hence the desirability of nominees and straw men. However, a federal court has held that if the nominee misrepresents the identity of the principal, with knowledge that the seller would not have negotiated if in possession of the true facts, the seller may set aside the transaction. In addition, if the nominee or straw man exercises any managerial control over the property, then he may be held to be the real owner for tax purposes.

If a broker or a salesperson attempts to use a straw man to purchase property listed by the broke or the salesperson, this relationship with the buyer must be specifically disclosed in writing to the seller. Failure to do so may result in license suspension or revocation.

In a presale of a condominium, a developer normally must attain a certain percentage of purchases before a lender commits to lend money; straw men are sometimes used to meet this minimum requirement, though this practice is clearly against the lender’s policy and would be illegal in connection with VA and FHA loans.

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