Ask a Broker: When a 'Straw Man' is the buyer, does that mean a real estate deal is crooked?

By Peter G. Miller

Q: I'm interested in investing in residential real estate. In doing research I've come across the term "straw man." I believe I have a basic understanding of the term, but here's what I don't get: Is using a straw man illegal in itself, or does it only become illegal when used along with fraudulent practices?A: In "The Language of Real Estate," attorney John Reilly defines a straw man as "one who purchases property for another so as to conceal the identity of the real purchaser; a dummy purchaser; a nominee; a front."In a real estate class for brokers that I teach, one student explained how a single buyer used several dozen straw men (and women) to purchase thousands of acres of land, property that eventually became a planned community. Wealthy individuals and companies also use straw men so that property owners do not increase prices because of the buyer's presumed ability to pay a premium.The rules governing the use of straw men vary by location. Reilly points to one federal case where a judge set aside a purchase because the seller would not have dealt with the buyer had his true identity been known. Beyond the whole straw man question, of course, any transaction involving "fraudulent practices" is simply doomed.One important issue concerning straw buyers involves taxes. If property is bought in the name straw man Smith and then re-sold to Jones, there could be a requirement for two closings and two sets of property tax payments even if Smith only "owns" the property for a few minutes. To avoid double taxation, speak with a local real estate attorney about the use of assignments before closing and for specifics regarding the use of straw men in your jurisdiction.Q: An ethanol plant is being proposed for an 800-acre tract in our community, a property that has yet to be rezoned. A local broker/appraiser is telling everyone that where these plants have been built property values have dropped 50 to 90 percent. Any comments?A: One of the most difficult community issues concerns the location of industrial plants, landfills, nuclear waste dumps, prisons, cemeteries and other necessary facilities. No one wants a home near something that's loud, dangerous or "fragrant" - or is perceived to have other negative qualities.But you've got to view perceptions in context. Property owners who live near cemeteries, for example, often like to boast that they prefer their location because the neighbors are so quiet. And the new industrial facility down the road can mean local jobs, and perhaps a more buoyant local economy. What this means for you is that it's time to do some homework. Ask the local broker where, exactly, he or she has seen property values decline after plants were built. Then use the Internet to contact brokers and appraisers in these locations to see if there were price drops associated with the construction. And consider what might happen to property values in your area if the plant is not built.I suspect that what we really have here is both a political issue and a NIMBY matter "not in my backyard." The local community will need to figure out what's true, what isn't and what would be best for the area.Q: There are marital liens on each of my dad's two properties in Oklahoma held by his deceased wife's children. One is for $10,000 and the other for $15,000. Her grown children are claiming that dad owes them for the nursing home bill and burial. We just want to sell the house. Our attorney has suggested a suit to "quiet title."A: A "quiet title" action is designed to remove title claims that make a property difficult to sell, finance or refinance. Your attorney will look for grounds to throw out or reduce the liens. Questions that must be answered: Why is the father obligated? If an ex-wife is involved, the divorce settlement might address the issue. How long have the liens been in place? In some jurisdictions certain liens lapse automatically after a given time period. Where is the documentation for the nursing home and burial bills?Filing a suit to quiet title may result in an effort to simply settle the matter for a negotiated amount rather than face a court battle, especially if the claims are weak. Content That WorksDo you have a question or a quandary about buying, selling or renting? Peter G. Miller, author of The Common-Sense Mortgage, specializes in providing real solutions to real estate dilemmas. E-mail your questions to peter@contentthatworks.com.