Real Estate Council of Alberta Fundamentals Practice Exam

What is a common characteristic of Vendor Cash Back fraud?

1. The buyer pays a lower price for the property

2. The lender is misled to approve a larger mortgage

3. The property is sold without an appraisal

4. There are no cash transactions involved

The correct answer is: The lender is misled to approve a larger mortgage

Vendor Cash Back fraud typically involves a scenario where the seller (vendor) offers the buyer a sum of money back after the closing of the sale, which may not be disclosed to the lender. This practice is fraudulent because it misleads the lender regarding the true purchase price of the property. By presenting a lower sale price to the lender, the buyer might qualify for a larger mortgage than they otherwise would be eligible for. This misrepresentation can lead to financial risks for the lender, as they are basing their loan approval on information that does not accurately reflect the transaction taking place. In this context, although factors like the property's sale price and appraisals can be relevant in other scenarios, the essential aspect of Vendor Cash Back fraud revolves around the deception of the lender to secure more financing than what is legitimate, which directly relates to the approval of a larger mortgage based on false pretenses.