And if you don’t disclose same it may be fraud, and open you up to private lawsuit, or criminal prosecution.

If it's a scam, it probably is somebody using their identity.

It's easy to forget when your first property in the area appraises high, you assume the next purchases are almost identical properties so will appraise at the same value.

In my opinion, with or without the partner mortgage signature, the fact that they are to be listed on the deed after the mortgage is closed in any capacity other than a survivor transfer, could be viewed as fraud by underwriting since they would own a percentage of the asset, removing it from the mortgage lien.

Your "friend" is committing fraud and by you being aware of this fraud being committed by your friend you actually have an ethical obligation to let others know of this and to not to be a part of it.

I am also from Europe ( The Netherlands 🇳🇱) with almost identical story.

If you were to compare identical strategies with the only difference being one is 40% LTC and the other is 90% LTC, the 90% would typically be considered riskier. 

That said, I'm considering investing in some private companies via Debt Financing because they would pay a quarterly distribution if all goes well.I understand it can be risky (some of the private companies have a fraught history, with CEO's that were accused of fraud & bankruptcy; while other companies have a cleaner track record).

Makes me shake my head that people are so desperate to get a loan that they will gamble their identity.

The neighbor said that he knew that the neighboring townhome (the one they just purchased) was under a contract, so he suspected that something was not right.The next day my friends, after waiting for the “landlord” phone call all day, decided to go to the property and call the police to confront the "tenant" and confirm his identity.