On the risk associated with Second position notes when there is any issues in the collateral those get wiped out as quick as they were created.. there are simply to many good first TD's that return 12% to even consider risking investing in that kind of deal... the risk reward simply is not there in IMHO.... you can align with a great HML in your market and make 12% every day of the week all first position etc etc... for the life of me I can't understand how people would take a risk in second positions only to make 12%.. regardless of the stature of the company.. 

One exception is that some private money lenders will cross collateralize several properties.

Assuming your 401k is in standard stocks (say, the S&P 500), your retirement goes the way the stock market goes and with no collateral to boot.

The bank is willing to add this building as collateral on the 2nd mortgage, in effect showing $865k financing on the property.Question 1: Will the 2nd mortgage, blanked on both properties, be treated the same as the 1st mortgage at the time of the exchange?

In exchange, you take the financial risk of buying the property and borrowing the money from the future, along with personal guarantees and collateral to protect the lender’s position in the property.

You and the investor agree on the terms of the loan and any collateral, and then you have an attorney draw up the promissory note2.

The property being bought can secure it and you can also offer cross-collateral on other properties like the ones you'll sell.  

What we (my company) do/did is add capital as additional collateral.

It's an issue that a note and security agreement is given as collateral to cover the obligation, not intended to provide a windfall of profits from a note.

When in doubt, pay an attorney to review it with you.The better the collateral & documentation, the less important the borrower is in the formula.