1031, 2nd Lien, and Seller Carrying the 1st Mortgage

[Andrew R.]

Looking for some feedback on a 1031 exchange I'm currently doing.  I just sold my condo and the capital gains are sitting with a qualified intermediary.  The property I would like to buy is under contract and has a mortgage of about 50k with I would like the seller to hold this note (which he's agreed to) however, it seems this would be difficult to do according to the title company.  They've suggested instead, I could file for a 2nd lien on the property so that I have some security when it gets paid off or sold.  Doing this the original mortgage and title would stay in the seller's name.  Just to shed some background this is in the state of TX and the seller is a family member. 

My first question is, is this doable with a 1031 exchange and if so has anyone else in the BP community done this when the seller is willing to carry the 1st note and how did it work out for you? 

Any feedback would be much appreciated. 

[Scott Wolf]

@Andrew R., I'm probably missing a ton of information, but this doesn't make sense.  

1) If you put a lien on the property and don't take title, then you're not actually buying the property.

1a) I'm not sure how a 2nd position lien puts you in a better position according to the title company.

2) The entire net proceeds of the sale should be with your qualified intermediary, not just what you think is the capital gains. (this may be the case, but based on your post, it's unclear.)

3) This is not an "arm's length" transaction and will be under further scrutiny of the IRS.  Something to be aware of since you are related to the seller.