Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

What is a straw buyer in real estate transactions?

1. A buyer who makes legitimate payments

2. A buyer who does not intend to pay any payments

3. A buyer who invests in multiple properties

4. A buyer who seeks legal advice before purchasing

The correct answer is: A buyer who does not intend to pay any payments

In real estate transactions, a straw buyer refers to an individual who buys property on behalf of another party, often without the seller's or lender's knowledge. This practice frequently arises in fraudulent situations where the straw buyer is enlisted to take title to the property so that the true buyer can evade scrutiny or qualification requirements. The concept of the straw buyer typically involves a lack of intent to fulfill obligations that come with ownership. In many cases, these buyers may not plan to make any payments or take responsibility for the property after the purchase is completed. This creates an environment ripe for deception and potential legal issues, especially if the transactions are part of a scheme to defraud lenders or investors. Other options highlight various legitimate behaviors in real estate transactions, but they do not capture the essence of what constitutes a straw buyer. A straw buyer’s role inherently revolves around the intention of misrepresentation or avoidance of rightful obligations associated with the property transaction.