Why might a seller engage in vendor cash back fraud?

A seller might engage in vendor cash back fraud primarily to inflate the sale price for the lender. This type of fraud typically involves manipulating the sale price of a property to present a higher value than it truly has, thereby increasing the amount of loan a buyer qualifies for. In such cases, the seller might conduct transactions where a portion of the cash from the buyer is returned to them after closing, which is disguised in the documentation as legitimate costs, incentives, or discounts. This practice misleads the lender into believing that the property is worth more than its actual market value, which can lead to lenders assuming higher risk based on inflated valuations.

This method can also create an illusion of significant financial activity, giving the impression that the property is more desirable and thus justifying the inflated sale price. By doing this, sellers can manipulate financing options for buyers, enabling sales that might not otherwise qualify under standard lending conditions.