Posted by Rick Roberts - KC on February 19, 2001 at 16:07:43:
…worth less than you think.
A critical factor in determining the marketability of a second note is the size of the second in comparison to the size of the existing first. In general, seasoned seconds that are of a 3:1 ratio or better in comparison to the senior lien are marketable (e.g. a 30,000+ second behind a 90,000 first). Seconds that are much smaller than that relative to the first are not very marketable, but often can be sold at .25-.35 cents on the dollar (e.g. 10,000 second behind a 90,000 first). The discount is steep because of the potential risks/costs that would be incurred by the holder of the second note if either lien goes bad.
I hope that these GENERAL thoughts help.