They appear to be using some identical photos to the MLS listing from months ago even though your furniture has changed.

Well, congratulations on admitting to mortgage fraud on the internet, Mr.

First  - you do not need an LLC for a property that has a mortgage.Second - Since this is a second home loan and you want to move it into a business entity this could be seen as mortgage fraud.

Lenders usually only cancel a HELOC for reasons related to fraud. 

We ended up filing criminal charges for fraud for bounced checks and won.

If you're referring to Joan Peters book, that was exposed as a fraud years ago.

As far as it being "illegal" only if fraud is committed.

@John Garrett were not any type of auditors, but telling everyone your friends are going to commit mortgage fraud by buying a second home they will rent out for more than the two weeks per year that the IRS allows, is not a good idea.That aside, make sure your agreement covers not only splitting the profits, but also who is in charge, penalties for not paying their share of losses, and most importantly, how one of you can get out of the partnership.

You might want to think about (Trying) to get the local Police to take a report about "Fraud" regarding the letter, and see if the District Attorney will prosecute the person.Someone going around defrauding a business like that out of thousands of dollars in income, might get the attention of the District Attorney.Good Luck!

Exchanging money outside the transaction would constitute mortgage fraud.