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I am asking this question on behalf of an Indian friend of mine.

My friend (A) is planning to sell a house. The prospective buyer (B) will take a bank loan to buy the house.

Now B suggests that an amount ~ 30% higher than the house price will be transferred to A's bank account. A should return the extra amount to B.

A has become suspicious of B's intentions. In India, the bank loan amount is usually around 80% of the house price.

In this case, the bank loan amount is 130% of the house price. It appears that B is trying to perpetrate some kind of fraud.

Is B really trying to deceive A and/or violating the Indian/Bank law?

References:

Second Party Fraud

https://fraud.net/d/second-party-fraud/

Section 17 in The Indian Contract Act, 1872

https://indiankanoon.org/doc/299780/

Operation of bank accounts and money mules

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=6136&Mode=0

The Prevention of Money-Laundering Act, 2002

https://indiankanoon.org/doc/1697463/

Money mules (p. 19)

https://rbidocs.rbi.org.in/rdocs/content/pdfs/BEAWARE07032022.pdf

Prevention of Money Laundering Act, 2002

https://en.wikipedia.org/wiki/Prevention_of_Money_Laundering_Act,_2002

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  • Of course. How many banks will legitimately offer a 130% mortgage?
    – Simon B
    Commented Jan 16, 2023 at 20:41
  • It's a scam. Banks don't give mone freely and loans with a house as a collateral had a ton of paperwork to protect the bank from this kind of scenario.
    – Tridam
    Commented Jan 17, 2023 at 21:58
  • This can happen if the seller A agrees to sell the property below market value. Consider the following scenario: Sale price = 100, Market value = 162.50, Bank loan = 80% of 162.5 = 130
    – PTDS
    Commented Jan 17, 2023 at 23:01

1 Answer 1

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From the income tax point of view, I can tell you that the sale consideration for capital gains will be that 130% figure. So, 'A' may end up paying more income tax.

And banks usually do property valuation for calculating the maximum permissible loan amount.

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  • Thanks a lot for the answer. Please tell me something: Can B fraudulently show an inflated price of the property to the bank?
    – PTDS
    Commented Jan 17, 2023 at 20:25
  • Yes. But it won’t be useful to him as banks pay the loan amount directly to the seller.
    – Manish
    Commented Jan 18, 2023 at 10:21
  • The only problem is: What if seller A agrees to buyer B's "proposal" (assuming that the bank approves the loan)? Probably A becomes a "Money Mule".
    – PTDS
    Commented Jan 18, 2023 at 20:43
  • A is good as long as he gets his money and doesn't pay back anything.
    – Manish
    Commented Jan 19, 2023 at 12:31

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