Some investors obtain more than one loan when acquiring properties, thereby substituting more debt financing for equity financing. A traditional second mortgage is secured by:

Question

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A traditional second mortgage is secured by the borrower's pledge of the property as collateral. This means that the lender has the right to foreclose on the property and sell it to recover their money in case the borrower defaults on the loan. Option A is incorrect because a second mortgage is not secured by an equity interest in the borrower's company. Option C is incorrect because US Treasury securities are not used as collateral for a second mortgage. Option D is incorrect because a balloon payment made by a government sponsored enterprise is not a form of collateral.

Some Investors Obtain More Than One Loan When Acquiring Properties