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.. 

Borrows lost their ability to pay because the debt is too big and their collateral has lost value (property, stocks etc. etc.).

And I don't want to apply to a bunch of places and have them drop my credit score by inquiring too many times.I'm perfectly comfortable putting the townhouse up as collateral as well as the warehouse (the one owned in my personal name) too. 

He then mentioned the bank would ask for a personal guarantee on the loan even though the property will be held by an LLC (with the building and land as collateral).