Why couldn’t the second foreclose? While it’s true they won’t get all of their money,maybe not even any of it back. It sure sends a message to others though. They’re probably being sneaky about it though and are hoping you will trade 1 year of modest interest for what could conceivably become a recourse loan if they reword the contract. Also do you have it in writing that the first is giving you 4% for the life of the loan? I would want it in writing.