Question

Sofia and Luke are purchasing their first home with a down payment of 10%. The down payment is a gift from Sofia's grandmother. Sofia's grandmother has written a gift letter for them indicating that there are no repayment terms. Luke, Sofia, and her grandmother, however, have agreed amongst themselves that Sofia and Luke will pay the money back after the loan has funded. Which situation best describes what has been done?

a) Credit fraud
b) Equity fraud
c) It is not fraud when you are dealing directly with family.
d) It is not fraud since there is no interest to be repaid to the grandmother, just the amount borrowed.

Answer 1

The situation where Sofia and Luke, along with Sofia's grandmother, misrepresent the nature of the down payment for a house is considered credit fraud.

Step-by-step explanation:

The situation described in the question is best classified as credit fraud. When Sofia's grandmother wrote a gift letter stating there are no repayment terms, but they have privately agreed upon repayment, it misleads the lender about the true nature of the down payment. Lenders require an accurate financial picture to assess risk correctly, and any misrepresentation in this process can constitute fraud.