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

What is the risk associated with using a straw buyer?

1. Legitimate transactions

2. Potential foreclosure and loss of properties

3. Increased property value

4. Reduced tax liabilities

The correct answer is: Potential foreclosure and loss of properties

Using a straw buyer carries significant risks, particularly the potential for foreclosure and loss of properties. A straw buyer is an individual who buys a property on behalf of another person, often to conceal the true buyer’s identity or to secure financing that may not otherwise be available to them. This kind of transaction can lead to legal issues and financial complications. If the true buyer defaults on the mortgage or the financial obligations tied to the property, the straw buyer could face foreclosure, losing both their investment and creditworthiness. Moreover, this practice can also create a ripple effect in the real estate market, leading to increased scrutiny and potential penalties from regulatory entities. Additionally, properties involved in such arrangements may experience a loss of value due to their perceived risk, inconsistently affecting the market dynamics in the area. While other options may present appealing aspects of real estate transactions, they do not capture the inherent risks associated with the illegal practice of using a straw buyer. For instance, legitimate transactions refer to properly executed purchases, increased property value may suggest healthy market conditions, and reduced tax liabilities could be legitimate benefits of legal ownership but do not address the clear downside regarding compliance and market integrity that straw buying introduces.