Unless you have begun construction of a home on the bare land that you can occupy within 24 months, the land would be considered an investment and the interest you paid on the second mortgage would not qualify as deductible mortgage interest. However, it would constitute investment interest if you itemize your deductions. For more information,
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Cheap Mortgages

Remember, just because your 2008 return came through without any hassle, doesn't mean the IRS will not audit it within the 3 year time. All Mort. Interest paid is reported to the IRS, and the IRS will always give the refund first, then they do an audit 1 or 2 years later.

You need to withhold the Interest from the bank, and pay that interest to the IRS, and then the foregin bank must get their interest from the IRS.

You would then be assessed more interest for the unpaid interest to the bank.