I'm sure some really smart guys will jump in and answer this, but my understanding is that Dodd-Frank is concerned with lending to people using the property you lend on as collateral.  

I would go for paying the property off if you can, then if needed use it for collateral for buying the next house. 

You don't need large cash reserves if you are willing to use the house for collateral.

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.