The type of mortgage fraud involving an undisclosed loan made by the seller to assist with the down payment is called?

The term that accurately describes a type of mortgage fraud involving an undisclosed loan made by the seller to assist the buyer's down payment is known as a silent second. This practice occurs when the seller provides a second mortgage to the buyer without disclosing it to the primary lender. This second loan is typically used to cover the down payment, allowing the buyer to proceed with the purchase when they may not have sufficient funds.

A silent second can create significant risks for lenders, as it can misrepresent the buyer's financial situation and deposit viability. Lenders generally require a certain percentage down payment for the borrower to qualify for a mortgage. The presence of this undisclosed second loan can violate loan terms and regulations, leading to potential legal consequences for all parties involved.

This understanding emphasizes the importance of full disclosure in all financial transactions related to real estate. Engaging in such practices can have serious implications for both buyers and sellers, linking back to the ethical standards upheld in the mortgage industry.