BiggerPockets

The selling bank will make the buyer sign a form saying the previous owner will not benefit. This may not be illegal (i.e., a criminal act), but it may be a violation of the contract that would open up this family member and the previous owner to lawsuit by the lender.

In most approval letters (not all) issued by the lender it will require an arms length transaction and some will even point out that the seller cannot sell to a relative. In the case where this is spelled-out in the approval letter, the title company will require an affidavit signed by both the seller and the buyer that this is a arms-length transaction. If both sign and the transaction closes, then the lender has the right to pursue both parties.

Seperately, the state attorney general could also prosecute each party for criminal fraud.

In all likliehood, this will not happen, but I do know a case where this has happened in my state and both parties are now doing time.

No matter how you slice it up, it is at the very least unethical and quite possibly criminal.