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is a security agreement that provides collateral for the loan in case of default. The security agreement promises, in essence, to back up the performance of the borrower in repaying the note. If the buyer fails to live up to his commitments, then the lender is entitled to the collateral (property) pledged as security for the loan.

What conventional wisdom fails to grasp is the idea that while the terms of the note are fixed, there may be dozens of ways to satisfy the security needs of the seller other than using the subject property itself as collateral. As the procedures of Technique No. 36, “Moving the Mortgage” will make clear it is always wise in negotiating a real estate purchase to include a “substitution of collateral” clause in the purchase agreement. Such a clause allows the buyer to substitute other collateral as security for the note in the future, subject to the approval to the seller. It is sometimes possible, even after the fact, to induce a seller or the holder of an underlying mortgage to “move the mortgage” to another property (substitute other collateral). Frequently sweeteners are needed to get the job done – an increase in the interest rate or the principal amount, an improvement in the position of the note (e.g. from, third to second or from second to first), an increase in the amount or quality of the collateral, etc.).

Why is it beneficial to move a mortgage? The key is this: if property owned by a buyer can be “de-financed” (freed of encumbrances, in this case by having the existing mortgages moved to other properties), then the buyer will be free to put new financing on the property and “crank” out funds that can be used, for example, as down payments. Alternately, the de-financed property can be sold to raise capital for the same purposes. Now here is the twist that boggles conventional wisdom: What if the down payment funds generated in this way are used to acquire the very property to which the mortgages we have been talked about are to be moved? Is it possible to arrange for a simultaneous escrow involving both properties? Certainly!

Here’s an example from the community of Olaho, Oregon – An investor acquired a 10-plex in the following way: using funds he had cranked out of an earlier investment property. He bought a SFH whose owners were willing to accept security for their carry back against the 10-plex our investor wanted to acquire. He then traded the de-financed SFH to the owners of the 10-plex – who in turn put new financing against the SFH to get capital they needed – Brilliant!

In another transaction in Evergreen, Colorado, the problem was not one of generating cash for the down payment but rather in assuming

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