Is this fraud or legal?

If a buyer is having a hard time getting a loan for a townhouse that a friend wants to sell for $51k, because the bank requires the loan to be at least $50k after 15-20% down, would it be okay for his friend (the seller) to say he is selling the house for $65k, so the buyer can qualify for the loan? So, $65k loan with 20% down ($13k) leaves a loan of $52k. The $14k ($65k-$51k) that was payed over what the seller wants, is given back to the buyer to fix the foundation and any other repairs. Is this legal? If not, can the contract say the seller will put $14k towards fixing the foundation after closing, since he has the $14k extra in his account?