Sketchy sounding no-money-down scheme

[Michael Herr]

I am evaluating a SFH. Seller just wants free of tenant headaches and doesn't want to do rehab.

I proposed seller finance for up to 18months to give me time to rehab, rent and cash-out refi. (I have successfully done a rehab cash out refi before and understand the process/issues/risks) seller said thwt would likely be fine:needed to think it over. 

On the second conversation with the seller he suggested that he would "loan" me the 20% down and raise the asking price so that the 80% bank loan was the original amount he wanted then rip up the note for the 20% second he loaned. (getting it to appraise will not be a problem)  

This seems like mortgage fraud, and I'm definitely not going to do it. 

He said that he had been"out of the real estate game" for 20 years and this type of deal was common back in the day. 

Had anyone else heard of this?