Can anyone help with this deal?

So this is the deal…
property value $500,000
current mortgage $300,000
The homeownwer needs about $20k but can’t get a second because of credit score, doesn’t want to refi because they have a 5.5% rate on their first. I wanted to loan the money and be a second mortgagee on their house. Has anyone here ever done this? Please let me know where this can go wrong. If I have to foreclose, how difficult would it be? Its in Virginia.

Being the 2nd puts you in a hard spot. If he is paying the 1st, you really will not have much luck on the foreclosure since you will need to buy out the 1st. Or look at it this way
If someone has a 1st and 2nd. and your doing a short sale, the 2nd can many times be settled for 10cents on the dollar.

Also this guy credit is so bad he can not get a HELOC or stand alone 2nd. I do not know if this is a friend of yours, but never mix business with family and friends. It will create more problems then it is worth if deal goes wrong.

With that much of equity - 20K is very much protected.

Before you lend the money do a title search and check for any other liens. You have to record your mortgage in the county.
Ask a real estate attorney to lead you through the process. Every state is different, what is OK in California may not be in Texas …

Just make sure the contract you sign gives you enough protection in case things go south.

For the amount of risk involved I would need a very high return to get involved, way into the double digit percentages. I’d be surprised if your borrower would be willing to do that. I also doubt he will pay you back in a timely manner, after all he can’t even get a heloc to cover it with $200k in equity…this paints a really bad picture of his income or credit or both.