FHA has a prohibition on second mortgages secured by real estate. That doesn’t mean that subordinate debt is out of the question. Many affordable housing projects received HOME Loans and other subordinate financing from state and local programs. To refinance these programs, the subordinate lenders must agree to have their loans restructured as cash flow notes secured by the residual income from the project. Rockhall has done this a number of times and generally we have not had a problem getting cooperation from the state or local affordable housing lender.
It also is possible to structure supplemental debt on an existing FHA insured transaction by securing the supplemental loan with partnership or membership interests in the mortgagor entity. HUD will not allow the general partnership or managing member interests to be hypothecated. But regular partnership and membership interests may be pledged to secure a note.
If you think your transaction doesn’t work with FHA, call us. We have been successful with a number of different transactions that other lenders have turned down.