2nd Lien Non-Performing Notes

What are the pros and cons of buying 2nd lien notes when the 1st lien is either performing or non-performing?

2nd position notes are higher risk than 1st position and are typically discounted more deeply as a result. That’s not to say, however, that they aren’t worth pursuing.

When I’m dealing with 2nd positions, I like:

  1. A great borrower with great credit
  2. Low loan to value leverage on the combined notes
  3. Good property as collateral.

You can make some great money from the 2nd position if you know what you’re doing.