Seller financed 2nd will not accept payment

[Stephanie Trevizo]

Hi everyone, in April 2020 we purchased a 4-unit property in Los Angeles where the seller financed a 2nd mortgage. The seller stayed in the property as our tenant after close. We are attempting to pay off the 2nd, which is due in March of 2022, so we can refinance the first mortgage. However, the lender (seller/private party) will not provide a payoff statement and said they do not want to accept payment because they "will get murdered in taxes and want the extra income". Extra income being our interest payment. There is no prepayment penalty per the note. One of our attorney's told us she cannot "just decide" not to allow pay off and I am waiting to hear back from another attorney. Has anyone experience this? 

[Jim OConnell]

""will get murdered in taxes and want the extra income". Extra income being our interest payment." How do they owe taxes on getting their principal back? It's not income. Losing the interest on the payment is something...Maybe offer them the option of rolling the loan into the next property you buy, giving them an option to refinance an aggregate first for you (well - maybe not if they are weird), or offering them a variation on the "cash for keys" kind of thing....maybe proposing something like, "we are sorry you are losing some income, you can get paid off eventually through escrow on the refinance, or we could pay you off now with an extra small fee for your inconvenience and loss of income from the prior owners' actions "....maybe something like an hour or two worth of legal fees.