I purchased a property from an individual in a very difficult position, both financially and due to his poor health.  The situation was made worse by a separated spouse who remained on the title, and the use of the secondary loan market to raise cash for covering living expenses.  All of this was further exacerbated by the Calgary recession.

The financial management of the property by the owner was basically a lesson in personal finance 'what not to do', and eventually created a no-win situation for the seller.  From this what I learned is that a property owner in Calgary is in a good position as long as he is employed, healthy, and staying out of debt, because he can quite often sell a property quickly and benefit from the equity in the event of hardship such as job loss.

What tends to happen however, is the owner does not want to move or change anything to save himself from unsecured credit card bill, loans and business cost so he tends to attempt to use the property as a savings account.  In order to do this he must generally refinance the first mortgage with a major bank.  Once this avenue is exhausted, he turns to the secondary market. Here he encounters much more unfavourable terms (bordering on predatory I would say), but the risk is heightened here for default, so you can expect some fairly awful terms.

The second mortgage usually comes at a heft price, 12% is a common rate, and the upfront fees take a good chunk of the equity.  As an example, a $50k second mortgage loan may cost $5k in fees, so the borrower only receives the proceeds as $45k, and immediately takes on a second payment on the full $50k loan.

The problem is often the first mortgage is unaffordable, so the second monthly payment just adds to the burden.  Some of the cash injection is used to pay off unsecured loans like a credit card or for business costs, so what was once unsecured credit now become a loan attached to the house title. The second loan money is drained quickly, and the monthly bills once again go unpaid.  Now the seller has no way out of the credit cycle, and the equity that was once his has been drained by the financial system.

At this point the seller really needs to sell, but lacks the equity to move on.  Selling months earlier would have been painful, but at least he would have walked away with something.  The second mortgage just delays the inevitable reckoning, and being in default with a second loan operation is far worse than with a mainstream bank.  

My advice to property owners out there is to avoid being in a scenario where you must sell, instead sell before you need to. Having time to extract a full market value offer (and close the deal) out of the market can take time and patience, not easy while living with a pile of unpaid bills.   Second mortgages are to be avoided, because likely this will just buy some extra time to stay in the house, but at a heavy price in equity that will be needed later.  

All of this advice will likely go unheeded, based on my experience with this seller.  In the end I purchased the property and allowed the seller to stay in the house for a six month period without cost as part of the deal.  Not all buyers will have this flexibility to offer a seller.  If forced to sell, with no job or equity left once the deal closes, the seller can be in a truly awful position.  All of this could have been avoided if the seller would have managed his affairs differently.