Any thoughts on whether this should be borrowed as a 'homeowner' or 'business'?

@Hunter Gibson This will likely be hard to find. aIthough is more likely to happen with a smaller local bank who basses their loans more on the relationship with the borrower.

As I understand it, the lender should not count the entire PITI of the loan against the borrower in this case, but 25%. 

Private lenders allow much more exposure to a same borrower than traditional banks.

Can I assume his note, for 1M and just borrow 1M from SBA in second position?

BUT, the lender must provide certain required notices to the borrower and in the newspaper notices of the foreclosure.

In my experience these are the levels of how financial fraud is doneLevel 1 - The “sponsor” is a fraudster from the beginning and the entire investment is a designed fraud designed to steal the investor's money Level 2 - The sponsor initially intends to operate legally and honestly but the temptation of easy access to money, usually fueled by addictions to drugs, sex, partying, etc. leads to the bad decision to line the sponsors own pocketsLevel 3 - The sponsor intends to operate legally but a crisis in their life resulting in a need for money leads the sponsor to “borrow” from investor’s funds with the full intention of paying it back ( which they are unable to do).Level 4 - The sponsor intends to operate legally but the assets under their management incur substantial loses; the sponsor attempts to cover up these loses by “temporarily” borrowing from one investor to pay another or submitting false results.

Lenders take back properties when the borrower doesn't pay.6.)

The problem was that the borrower wasn't that qualified, so the broker really didn't have any good options to offer, so they just kept throwing up roadblocks in front of the seller until they finally through one up they couldn't meet (Like wanting 25% down, when that was never a condition up front.)  

The borrower can pay off the remaining principal balance, unpaid interest earned, legal fees, etc.