Are free cars with condo purchases a form of mortgage fraud?

In the past, I've written that the "free car with condo purchase" deals are a gimmick: There's no free lunch and if a condo comes with a free car, you'll pay more for it than you would have paid without the car. Otherwise, they wouldn't include the car.

But there's one important difference: These "Free x with the purchase of a home" deals allow buyers to basically roll the cost of a luxury item into the price of a home. And we're not just talking about Pintos.

CNN reports that "High-end shoppers will find luxury properties like the South of Fifth development in South Beach, Florida, which offered a free Lamborghini worth $260,000 when buyers purchased one of the multimillion-dollar properties."

Here's where it gets problematic: The lender is making a loan based on a property value that is inflated by the presence of extras. This already happens when a few thousand dollars in closing costs are rolled into a mortgage but in that case it's maybe less material. But a free $260,000 car?

Worse, these programs could cause problems for appraisals as they become more widespread. A buyer is hoping to buy one unit for $2 million and a similar unit sold for $2.1 million, so it seems like a good deal. But the appraiser or prospective buyer doesn't know that that $2.1 million sale included a $260,000 car. It's all fine if the buyer makes the payments, but if the property goes into foreclosure and the buyer moves to Idaho with the Lamborghini, the lender has a problem. These perks also make it difficult for buyers to tell whether a home is fairly priced.

Fannie and Freddie need to take a look at these perks that may serve to artificially inflate property values. When a lender makes a loan with a home as collateral, they need to know that the loan is based on the value of the home -- not the value of the home plus a Lamborghini, country club membership, and plasma-screen television.
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