Seller Finance, But Seller Does Not Own Free And Clear

[Ken Tsui]

Property listed for $350K

Owner has $180K left on mortgage and noted if I can get him the $180K, he could seller-finance another $120K (Total property cost would be $300K)

Is this legal?  I spoke with a mortgage lender who said they would not want to know about that second mortgage.  I'm trying to figure out why it would matter to the mortgage lender or bank.  They would have the first mortgage on the house.  The seller has the risk here because if something happens, he cannot get the property back, and he may not get paid the rest of the loan he's given to the buyer.

Thoughts?