Future equity we borrow out of the HELOC will cost us 4.625% variable, but our short term goal is to pay that down before the interest rate goes up...which we all know will happen.

(I'm not an attorney, consult yours)The first would be the promissory note, that outlines the terms of the loan, and the second would be a properly recorded mortgage, which defines what collateral can be claimed in the event of default, and the related process for making that claim.As @Robert Kinsey mentioned, 5% would be a bit low for me as a lender, but I'd be very happy to pay it as a borrower.

Unfortunately, I cannot borrow against my 401k because they are no longer my employer. 

Not impossible though.I have private lenders who loan small amounts like this for a year at a time, but they have reasonably high risk tolerances and a whole lot of trust in me as a borrower.

Can anyone please share what they know about borrowing from these types of lenders.

I have some borrowers that lend from us that used to lend from them.

Are you offering transactions, do you want to learn from them, make a friend, start a REIA, borrow money, build a buyers list?

The official term for SEC8 is the Housing Choice Voucher - with choice being the operative word.  

Without the borrower willing to participate in a short sale, you have No chance of getting a reduced pay off, assuming this is a traditional lender/mtg.

As for rooting against the home team, that is a personal choice.