Braindoc,
They can't make you sell anything, although they can put you in a position where the loans you are taking out make less financial sense than selling. If you are getting income from a property, I don't see how you can choose to not claim it as an asset. It clearly is an asset. You may get in trouble with your FAO if they find out you own a property you didn't put on the FAFSA, and they most likely will adjust your aid according to the new information. Assuming, of course, that the property is listed on your taxes or some other document that they will see.
Sperry,
You sound unlikely to be caught if the income is reported only on someone else's taxes. However, you signed the FAFSA saying that you had no undisclosed assets, which is perjury, unless you have a legal agreement that the house is not your and you are not able to sell/mortgage it. My opinion is that hiding it (assuming you do have the ability to profit from it, regardless of whether or not you do) is not honest, and not legal. However, I doubt that you will be caught.