I certainly know some borrowers who own commercial real estate that do not have sufficient net worth to cover the loan for the property.

When I refinance I can either borrow just enough to pay him back OR I can borrow up to $62k more to go invest somewhere else.

For example, if you want to lend on small multifamily in your local market - then you need to understand how to underwrite that, learn what the exit strategies are, other lends that a borrower could refinance into, etc etc. 

The Guarantor has an ownership or family interest in the Principle (Borrower) -- Is it sufficient to simply include this as a recitation?

is a boast for a commercial borrower or lender, as in "5.75% and a 25 year term with 30% down, not far off of Fannie!"

I am/was planning to bring the cash to close (option #3).Since I was planning to borrow nearly half this money (thinking I'd only need it to close escrow) I will have to structure a different deal over a much longer term. 

Of course, due to conventional guidelines on mandatory waiting periods (for primary residences), the borrowers had to wait a few more days to close. 

On the upside the interest is fixed like in a CD and it is passive once the borrow and the asset that the loan is secured by are both vetted.

Example: Borrower uses FHA to buy a Tri-Plex where they can use the income of the other unit to qualify for DTI purposes.

They basically found a way for to borrow a bunch of money from the bank, which is basically getting a loan whether you call it a refinance or not (who really cares?).