No down payment with "properly" written purchase agreement?

[Bryan Hudson]

Some time ago, better than 5 years now, I encountered a couple who claimed they avoided the down payment by often taking care of it in the purchase agreement.  

Their claim, was that they would get the seller to agree to what was tantamount to a phantom down payment, or write up the PA for more than the selling price to cover the LTV on the LOC, the HELOC or the mortgage.

I don't so much question the technique as I question the legality of it all?