Real Estate Council of Alberta Fundamentals Practice Exam

What type of fraud involves a vendor providing cash back after selling a property for a higher price?

1. Contract Kiting

2. Straw Buyer

3. Vendor Cash Back

4. Property Flipping

The correct answer is: Vendor Cash Back

The scenario described involves a vendor selling a property at a higher price and then providing a portion of that cash back to the buyer after the sale. This practice is indicative of vendor cash back, which is typically used as a means to circumvent lending restrictions or to provide the buyer with additional funds, potentially for purposes that might not be disclosed to the lender. Vendor cash back arrangements can plicate transactions as they often misrepresent the sale price of the property, which can lead to issues with mortgage approvals and appraisals. Such practices can be viewed as dishonest, potentially leading to fraud allegations if they're not reported correctly or if lenders are misled about the true transaction details. In contrast, other options may involve different fraudulent activities. For instance, contract kiting refers to manipulating contracts for financial gain, while a straw buyer involves one party purchasing a property with the intention of transferring it to another party without disclosing that intent. Property flipping pertains to the quick resale of a property, which can sometimes involve fraudulent practices but does not specifically denote the act of providing cash back post-sale. Thus, the focus on the direct relationship between the vendor's action of providing cash back after a sale accurately identifies this fraudulent behavior as vendor cash back.