Who is scamming who? Seems to me that both sides are making a bad deal, but neither is defrauding the other.
Your friend seems to have particularly bad money sense. So bad it makes me suspect you friend is not real, and you may be spreading a fake story. First of all who gets a 17% car loan? No one that is who, and someone who does is supremely unlikely to have made payments for four years. Then again your friend must've made the payments, or no bank would consider him for a loan.
Now as to this house loan, no bank will give a mortgage that costs more than 50% of net income, because FHA will not buy the loan after the fact. Banks do not generally hold mortgages themselves, but rather repackage them and sell them to Fannie and Freddie who will not buy unless certain minimum qualifications are met. The listed income is nowhere near close. Nor could this short sale house be similar to the other house listed at 73K. A short sale will generally sell at most 30% below market value which would mean the market value of the house is somewhere lower than 137K, but not higher than 104K or it would not be a short sale. Why would another house list at between 50-70% of true market value? Why would an appraiser appraise a house at 130-200% of market value? One of these conditions must be true in order for your story to be true.
In short, your story is almost certainly a fallacy. If it is true then your extremely financially challenged friend should thank his stars he has a chance to buy a similar house for 40K less. Even if he eats the appraisal and the earnest money he will be 37K ahead. If your friend is real sit his stupid 43 year old ass down and teach him how to value a property by comparing similar listings online prior to making an offer.
Jack of all Trades
Precinct Commiteeman Precinct 5 Rock Island Co Illinois