Isn't this mortgage fraud???

I thought purchase price was purchase price and that determined what the maximum mortgage amount. You can’t have a purchase mortgage for more than the selling price. I thought the seller can’t give the buyer cash back after closing (doesn’t it have to be discounted off the selling price?) I realize that after the purchase you can then take a 2nd afterwards if there’s equity.

I’ve recently seen two threads by beginners who seem to have bought property under this plan: buy house at appriased value, get cash back from seller, rent property at negative cash flow, and then use cash back to cover rent or invest cash back in other investments.

Where does this cash back magically appear from? Is this something the seller gives the buyer after the deal and it’s “off the books”? Isn’t that mortgage fraud since you are overstating the selling price of the home?

Maybe I’m missing something…

There are legal ways to cash back at closing,
Seller agree’s to lease back after closing , then cancels lease 1 day after closing and pays lease in full. Another way is to give builder credits for unused improvements which resulted the case below.

, The Hollxxx Company and Gary Veekxxx(the developer/seller) and Ms. Garner (seller’s real estate agent) are substantially marking up the selling price for certain Northpointe homes, ensuring an appraisal value at the higher price, and then promising and paying the home buyer substantial cash back after closing, i.e., $60,000 to 90,000. This type of cash back deal was offered to and accepted by at least two Northpointe home buyers, and was also suggested to Mr. xxxxx who declined.
Please be advised that the practice described above is illegal. It is very clear that Ms. Garner, The Hollman Company/Gary Veekner and the appraiser appear to be engaging in mortgage fraud. The federal government may prosecute the crime called “mortgage fraud” by essentially tying one of the existing fraud statutes to an act that is fraudulent. The most common statutes used in this situation are the bank fraud statute, the wire fraud statute, and the mail fraud statute. Also, given the number of people we know are involved in this scam, conspiracy to commit fraud is another serious potential issue.
Bank fraud is the criminal offense of knowingly executing, or attempting to execute, a scheme or artifice to defraud a financial institution, or to obtain moneys, funds, credits, assets, securities or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises. 18 USC § 1344 (2005). The activities of the parties identified above likely violate this section. The punishment for violating this section is a fine of not more than $1,000,000.00, imprisonment for up to 30 years, or both.

Mail fraud is devising a scheme or artifice to default and then using the nation’s mail system to carry out that scheme out. If the fraud involves a financial institution (which it does in this case), the penalties are the same as for bank fraud. See 18 USC § 1341 (2005). No doubt, the parties used the mail system at some point in perpetuating their fraud.

Wire fraud is devising a scheme or artifice to default and then using the nation’s telecommunications networks to carry that scheme out. Wire fraud is likely implicated here because funds were likely transferred via wire. Again, if the actions involve a financial institution, the penalties are the same as for bank fraud. See 18 USC § 1343 (2005).

Conspiracy is two or more persons conspiring to commit any offense against the United States or to defraud the United States, or any agency thereof, in any manner for any person, if one or more of such persons does any act to affect the object of the conspiracy. 18 U.S.C. § 371 (2005). The punishment for a violation of this section is a fine, imprisonment for not more than five years, or both.

In addition to the foregoing criminal penalties, Ms. Garner and the appraiser may incur civil penalties, including revocation of their respective licenses. See ORS § 674.140 and ORS § 696.301.
Ouch, Darin