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Mark Cappel
UpdatedJan 25, 2010

My spouse was an unwitting straw buyer in a HELOC scam. What can we do?

Bill, in reviewing your blog I found answers to some of my concerns already, but possibly you can help me further. Two years ago my wife made new friends who happened to be way TOO nice. After making her feel like she owed them something, they asked her to co-sign a $30k loan. I told her not to touch it. She did it anyway. When they sat her down to sign the papers read $250k and she reluctantly signed because they convinced her she was just a co-signer and had no obligation (yes she is financially NAIVE). This loan turned out to be a HELOC. The bank took her signature alone because the other party had gift-deeded the house to her (without even telling her) and stated she was single on the deed. He didn't mind giving away the house because it was already way upside down. Anyway, WAMU approved this loan, issued it into an account opened jointly with the friend, and they took the money. 18 months later the property was foreclosed on and the $250k+ interest is charged off in my wife's name. I guess they can potentially come after me for the $ (my wife doesn't work). We're divorcing now. The DA, AG, LAPD say my wife's a straw buyer -- a criminal, not a victim. I've tried negotiating with Chase (owns WAMU debts) -- I believe they were criminally negligent in issuing the loan, if not complicit in the fraud (the loan officer who got paid for pushing this funky loan through). They say they will look into it then do nothing. I can't get a lawyer who will touch this for less than $8k to start. I can't find help from any legal aid agency either. The IRS may label the charge-off as income as well -- or as loss from theft, but only if I can prove a crime. Any suggestions at all would help!

I am not publishing this answer because I possess fantastic legal insights into your predicament -- I do not -- but so that other readers will learn from your misfortune as the spouse of a straw buyer.

If the facts in your message are accurate, your spouse was a victim of fraud, her own ignorance of the law, and a profound lack of common sense. The fact that your spouse proceeded in an ill-advised scheme with no possible chance of profit even with honest partners that endangered her spouse's financial well-being is evidence not just of naivete, but destructive behavior.

I am curious why the LAPD would not accept a fraud report from your spouse. If she states that she signed the documents for a loan, and then never received the cash and is left with a house she never bought, that sounds like a simple confidence case.

You mentioned the LAPD, so I will assume you are a California resident and the events transpired in California. As a California resident, you are governed by California's family laws. California is a community property state. This means that property (real or personal) acquired during marriage is owned by the community (with the exception of gifts). Debt (aside from student debt) acquired during marriage is community property, too. Which means that both spouses have liability for debt incurred by one spouse during the marriage, including stupid debt. However, in practice, it is rare for creditors to pursue both spouses in community property states. That is not to say creditors never pursue both spouses because creditors have the right to do so under California law. Because you were married to the straw buyer during the transaction, you have liability for the debt regardless of your marriage or divorce now.

One course of action for you to consider is to proceed with the divorce (or not) and wait to see if both your (ex)spouse and you receive summons to appear for the breach of contract lawsuit filed by the creditor. If you do receive such a document, you may wish to consider bankruptcy.

Best of luck on your predicament. Please return here and update us on what transpires with the straw buyer.

I hope this information helps you Find. Learn & Save.