Fannie Mae and Freddie Mac (and many commercial loans) don’t currently allow subordinate debt. You can thank the Great Recession and Dodd-Frank for that. However, you can create two classes of investors: one for your equity investors and one for your seller. The seller class can have essentially the same terms they wanted in a note, i.e., they get paid first after the first-position loan; they get a fixed return; and you can buy them out by paying back the seller-financed amount with a refinance loan after a certain period, etc. The only thing they don’t get is a recorded trust deed or mortgage, and unless they want to be underwritten on the new loan, they may have to forego voting or takeover rights.

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