I'm just trying to figure out what is allowed to be in the garage by default, or what could be permitted. 

But yeah, prior liabilities/pending legal action (even that which hasn't been filed yet) will all follow the LLC.Technically, I think the loan docs/DoT would treat a change in 100% ownership of the LLC as an event of default -- would definitely need a review.

If you are taking enough Earnest money upfront, then the best case scenario is that they default, or the deal falls through, right?  

I think @Jay Hinrichs has the right answer - you have done something that's outside the lines, and no one wants to be in the position of holding that project should it come to pass that you default.

Better than getting a house repossessed by the bank because you defaulted on your mortgage.

It will cost you around $1,500 and take around 45 days if you are able to take a default judgment against them.

Other than him defaulting on the 1st mortgage payments, is there any other risk with being in a 2nd mortgage position?

here it's 3 months in which they give original folks the opportunity to cure defaults.

@Jack Quigley @Allen Chai I am from Central Jersey (Jackson) we purchase Defaulted Mortgages and real estate in NJ and nationwide. 

As a landlord or rental agent what would you want to be collecting from this group to ensure they will not default on the lease.