You would be better served with a line of credit for the purpose of real estate investing with your rental as collateral.

@Joe DaigleSeeing a lot of overpriced assets with a lot of collateral issues.

Having an attorney in that state is also good in case you have questions about a specific note/collateral.2) When you have to foreclose, which happens a lot with NPNs, then you'll very often end up with the house if no one bids on it at foreclosure auction.

The seller wants to move forward, and I talked to a local banker about a collateral-based loan as Plan B, just in case the note is called.

-What if, for starters, we were to simply offer a collateralized pool of mortgages owned by an LLC.

I'd love to use these as collateral on business line so I can make improvements, $10,000 or less, and resell or lease out.

I would ask your lender if they would allow you to use some of the equity you have in your other rentals as collateral and a source of down payment for your next purchase.

But that's not going to put it out of reach of the lender as collateral for your loan. 

Also you could do a substitution of collateral and move the seller's note to another property you own that would be acceptable to him.

lenders were mandated to do this.. and lenders LOSE a ton of money by taking a property all the way through the process any way to keep owner in there and get some payments coming is better for the bank.. they have to then do a Mark to market and that can kill their reserve collateral % .I did a ton of foreclosure rescue in my day prior to 08..