Can You Sell a Second Lien Note in Texas? A Complete Guide

If you hold a second lien note on a property in Texas, you have probably wondered whether anyone would actually buy it. Second liens have a reputation for being the riskier cousin of first lien notes, and that reputation is not entirely undeserved. In a foreclosure scenario, the first lien gets paid before the second lien sees a dime, which means the holder of a second lien carries more risk than the holder of a first. But more risk does not mean unsellable. Second lien notes trade on the secondary market every day, and if yours is structured well and backed by a property with adequate equity, there are experienced buyers in Texas ready to make you a cash offer.

The key to selling a second lien note successfully is understanding how buyers evaluate them differently from first liens, what factors make a second lien more or less attractive, and how to position your specific note to command the best possible price. Second liens are not valued the same way as firsts, and sellers who approach the process with the wrong expectations end up frustrated. Sellers who understand the dynamics, on the other hand, often find that converting their second lien into cash is one of the smartest financial moves they can make.

This guide covers everything you need to know about selling a second lien note in Texas. Whether your note is on a residential property, a piece of land, a ranch, or a commercial building, you will understand the process, the pricing factors, and the strategies that will help you get the most out of your note.

What Exactly Is a Second Lien Note?

A second lien note is a promissory note secured by a deed of trust that is recorded after an existing first lien on the same property. The "second" in second lien refers to the priority position — if the borrower defaults and the property is sold through foreclosure, the first lien holder gets paid first from the sale proceeds. The second lien holder only gets paid from whatever is left over after the first lien is fully satisfied.

How Second Liens Are Created

Second lien notes are created in several common scenarios. The most frequent in the Texas land and real estate market is when a seller provides partial financing on a property where the buyer also has a first lien from a bank or another lender. For example, a buyer purchases a $300,000 property with a $240,000 bank loan as the first lien and the seller carries a $40,000 second lien for the remaining portion above the down payment.

Second liens are also created when a property owner takes out a home equity loan or line of credit after already having a first mortgage in place, when a seller finances a portion of the purchase price to bridge a gap between what the buyer can borrow from a conventional lender and the full sale price, or when a property owner borrows against their equity for business or personal purposes while maintaining their existing first lien.

In the Texas land market specifically, second liens sometimes arise in transactions where a land company sells a tract with seller financing as the first lien, and then the original landowner retains a second lien for a portion of the price. They also occur in family transactions where one family member sells to another with a combination of bank financing and a private second note.

The Priority Problem and Why It Matters

The priority position of your lien is the single most important factor that distinguishes a second lien from a first lien in the eyes of a note buyer. Here is why it matters so much in practical terms.

Imagine a property worth $250,000 with a first lien balance of $180,000 and your second lien balance of $40,000. The total debt against the property is $220,000, and the property has $30,000 in equity beyond the total debt. If the borrower defaults and the property sells at foreclosure for $250,000, the first lien holder receives their full $180,000, you receive your full $40,000, and the remaining $30,000 goes to the borrower. Everyone is made whole.

Now imagine the same scenario, but the property has declined in value to $200,000. The first lien holder still gets their $180,000, but only $20,000 remains for your second lien of $40,000. You lose $20,000. If the property had declined to $180,000 or below, you would receive nothing at all.

This subordinate position is the fundamental risk that buyers of second lien notes must account for, and it is the primary reason that second liens sell at deeper discounts than first liens. But understanding this dynamic also reveals the path to maximizing your note's value: the more equity exists in the property above the combined total of both liens, the more protected the second lien holder is, and the more a buyer will pay for the note.

Can You Actually Sell a Second Lien Note in Texas?

Yes, absolutely. Second lien notes are bought and sold regularly in the Texas market. The secondary market for second liens is smaller and more specialized than the market for first liens, but it exists and is served by experienced buyers who understand how to evaluate and price subordinate paper.

The sellability of your specific second lien depends on several factors that we will explore in detail throughout this guide. In general, the notes that are easiest to sell share certain characteristics: significant equity in the property above both liens, a strong borrower payment history, a reasonable interest rate, and solid documentation. Notes that lack one or more of these characteristics can often still be sold, but the pricing will reflect the additional risk.

The most important thing to understand is that you do not need to find a buyer who specializes exclusively in second liens. Many experienced note buyers, including Longhorn Note Buyers, evaluate and purchase both first and second lien notes. What matters is that the buyer has the expertise to properly assess the risk of a subordinate position and the willingness to price it fairly rather than simply declining to look at it.

How Buyers Evaluate Second Lien Notes: The Critical Factors

Buyers approach second lien notes with a specific framework that differs in important ways from how they evaluate first liens. Understanding this framework helps you anticipate questions, prepare your documentation, and set realistic pricing expectations.

Combined Loan-to-Value Ratio

For first lien notes, buyers look at the loan-to-value ratio — the note balance divided by the property value. For second lien notes, the critical metric is the combined loan-to-value ratio, or CLTV, which includes both the first lien balance and the second lien balance divided by the property value.

A property worth $300,000 with a first lien of $180,000 and your second lien of $40,000 has a CLTV of approximately 73 percent. That means there is 27 percent equity in the property cushioning the total debt, and that cushion protects both lien holders. A buyer looking at your second lien sees meaningful protection and will price accordingly.

The same second lien of $40,000 on a property worth $230,000 with a first lien of $180,000 has a CLTV of approximately 96 percent. There is almost no equity cushion, which means even a modest decline in property value could wipe out the second lien holder's position entirely. This note will sell at a much steeper discount, if it sells at all.

As a general guideline, second lien notes with a CLTV under 75 percent are the most attractive to buyers. Notes with CLTVs between 75 and 85 percent are sellable but at larger discounts. Notes with CLTVs above 90 percent are very difficult to sell because the risk to the second lien holder is simply too high. For a broader understanding of how property value affects note pricing, see this overview of what determines note value in Texas.

Status and Balance of the First Lien

A second lien buyer needs to understand the first lien because the first lien directly affects the risk of the second position. Buyers will want to know the current balance of the first lien, whether the first lien is current or delinquent, the interest rate and payment amount on the first lien, the remaining term of the first lien, and whether the first lien has any features like adjustable rates or balloon payments that could create problems down the road.

A borrower who is current on both their first and second lien payments is in a fundamentally different position than one who is struggling to make the first lien payment. If the first lien is in trouble, the second lien is in even more trouble because the first lien holder has priority in any recovery scenario.

If you do not have current information about the first lien, the buyer will obtain it during due diligence. But having this information available upfront speeds up the evaluation and demonstrates your thoroughness as a seller.

Borrower Payment History on the Second Lien

The borrower's payment record on your second lien is just as important for second liens as it is for firsts — arguably more so. Because the collateral protection is inherently weaker in a second position, a strong payment history becomes an even more critical indicator of the note's likely performance going forward.

A borrower who has made 24 consecutive on-time payments on the second lien, while also staying current on the first lien, is demonstrating genuine financial capacity and commitment. That dual-payment track record is powerful evidence for a note buyer and directly supports a higher purchase price.

Interest Rate

Second lien notes typically carry higher interest rates than first liens, reflecting the additional risk of the subordinate position. In the Texas market, second lien rates commonly range from 8 to 15 percent. These higher rates are a significant selling point because they generate attractive returns for the buyer, which partially offsets the additional risk of the second lien position.

A second lien note at 12 percent interest is generating substantially more income per dollar invested than a first lien at 6 percent, and that income premium makes the note more attractive despite the subordinate position. If your note carries a strong interest rate, make sure it is prominently featured in your discussions with buyers.

Property Type and Market

The type and location of the property securing the note affect a second lien's value just as they do for first liens, but with higher stakes. Because the second lien holder's recovery in a default scenario depends on the property selling for more than the first lien balance, the property's marketability and liquidity are critically important.

Second liens on single-family homes in strong Texas metros are the most straightforward to sell because these properties are the most liquid. Second liens on raw land, rural property, or specialized commercial buildings carry additional complexity because these properties take longer to sell in a foreclosure scenario, extending the second lien holder's risk exposure.

Pricing Expectations for Second Lien Notes

Second lien notes sell at deeper discounts than first liens. This is not a negotiating tactic by buyers — it is a mathematical reality driven by the increased risk of the subordinate position. Setting realistic expectations from the outset will make the selling process smoother and help you evaluate offers fairly.

As a general framework, strong second lien notes with low CLTV ratios, long payment histories, and desirable property types may sell at discounts of 25 to 40 percent from the remaining balance. Average second lien notes with moderate CLTV ratios and decent but not exceptional characteristics might see discounts of 40 to 55 percent. Weak second lien notes with high CLTV ratios, short payment histories, or challenging property types may face discounts of 55 percent or more.

These ranges are general guidelines, and your specific note's pricing will depend on its unique combination of factors. The only way to know what your note is worth is to submit it to a qualified buyer for evaluation. Longhorn Note Buyers provides cash offers within 24 hours and can give you a clear picture of where your second lien falls in the market.

Strategies to Maximize the Value of Your Second Lien

While you cannot change the fundamental position of your lien, there are practical strategies that can help you get the best possible price.

Document the Equity Position Thoroughly

The CLTV ratio is the most important factor in your second lien's value, so provide the buyer with the strongest possible evidence of the property's current value. Research recent comparable sales, obtain a broker's price opinion, or provide any other market data that supports a favorable property valuation. Every dollar of additional property value above the combined liens translates directly into better pricing for your note.

If the property has appreciated significantly since you created the note, that appreciation is money in your pocket when you sell. Make sure the buyer understands the current market, not just the original sale price.

Provide Complete Information About the First Lien

Uncertainty about the first lien creates risk for the second lien buyer, and risk translates to lower prices. If you can provide current information about the first lien — its balance, payment status, and terms — you remove uncertainty and allow the buyer to make a more confident and generous offer.

Some second lien holders have the right to receive notices about the first lien status through their deed of trust provisions. If you have this right, exercise it and keep the information current. If you do not have formal notice rights, you may still be able to obtain information about the first lien through public records or by asking the borrower.

Highlight the Borrower's Dual Payment Performance

A borrower who consistently makes payments on both the first and second liens simultaneously is demonstrating a higher level of financial commitment than someone making a single payment. Emphasize this dual-track performance when presenting your note to buyers. It is one of the most compelling data points in a second lien evaluation.

Consider a Partial Sale

Because second lien discounts are steeper than first lien discounts, a partial sale can be a particularly effective strategy. Selling a defined number of payments rather than the entire note limits the buyer's exposure to the subordinate position and can result in a more favorable percentage discount. If you do not need to liquidate the entire note, explore partial sale options with prospective buyers. For a thorough comparison, see this guide on full vs. partial note sales.

The Selling Process for Second Lien Notes

The process of selling a second lien note follows the same general framework as a first lien sale, with additional emphasis on evaluating the first lien and the equity position during due diligence.

Submit Your Note Details

Contact a note buyer and provide the details of your second lien: the remaining balance, interest rate, monthly payment, remaining term, payment history, and property details. Critically, also provide whatever information you have about the first lien — its balance, status, and terms. A buyer like Longhorn Note Buyers can provide a preliminary cash offer within 24 hours.

Due Diligence

Due diligence on a second lien includes everything a buyer would do for a first lien — title search, property valuation, payment verification, document review — plus a specific investigation into the first lien. The buyer will verify the first lien balance and status, confirm the property value and calculate the CLTV, and assess the overall risk of the subordinate position. This process typically takes two to four weeks.

Having your documents organized and accessible is essential. For a complete checklist, see this guide on documents needed to sell a note in Texas.

Closing

Closing on a second lien sale is essentially the same as a first lien sale. The promissory note is endorsed to the buyer, the deed of trust is assigned and recorded, and the purchase price is wired to your account. The borrower is notified that the second lien has a new holder and receives updated payment instructions. The first lien is unaffected by the transaction.

Special Scenarios for Second Lien Notes in Texas

Several specific situations arise frequently with second lien notes and warrant additional discussion.

Second Liens on Land and Rural Property

Second liens on raw land or rural property combine the challenges of subordinate positioning with the challenges of unimproved or rural collateral. These notes can be sold, but they require a buyer with specific expertise in both second liens and Texas land valuation. The CLTV ratio is even more critical for land-secured second liens because raw land values can be more volatile than residential property values. If you hold a second lien on land, focus heavily on documenting the property's current value and any features that support that value — water access, road frontage, development potential, recreational appeal, or agricultural productivity.

Second Liens Where the First Lien Is Nearly Paid Off

If the first lien is close to being paid off, your second lien becomes increasingly valuable. As the first lien balance decreases, the CLTV improves, and your second lien position becomes more secure. In the extreme case where the first lien has been paid off entirely, your second lien effectively becomes a first lien — the most favorable position possible. If the first lien is expected to be paid off within the next few years, consider whether waiting for that event might significantly improve the price you can get for your note.

Second Liens Created in Family Transactions

Second liens that arise from family transactions — a parent selling to a child, siblings dividing an estate property — are common in Texas. These notes can be sold, but buyers will pay particular attention to whether the note terms are at market rates and whether the documentation is complete and legally sound. Family transactions sometimes have informal terms, missing documents, or below-market interest rates that can affect the note's value. If your second lien arose from a family deal, make sure the documentation is thorough and the terms are clearly spelled out.

Why Longhorn Note Buyers for Your Second Lien

Selling a second lien note requires a buyer who understands subordinate positions, can accurately assess CLTV risk, and has the experience to price your note fairly rather than simply applying an arbitrary discount. Longhorn Note Buyers has been purchasing notes across Texas since 2007, with founder Nick McFadin's experience stretching back to 1983. That four-decade track record includes extensive experience with second lien notes on every type of Texas property.

With over $47 million in notes purchased, an A+ BBB rating, and a 100 percent close rate on quoted deals, Longhorn provides the combination of expertise, reliability, and fair dealing that second lien sellers need. When they give you a number, that number holds through closing — no re-trading, no last-minute price reductions, no games.

Ready to Sell Your Note?

If you hold a second lien note in Texas and you want to know what it is worth, the answer is a phone call away. Contact Longhorn Note Buyers today at (210) 828-3573 or visit longhornnotebuyers.com to get your free, no-obligation cash offer within 24 hours. Whether your second lien is on a home, land, a ranch, or a commercial property, Longhorn has the expertise to evaluate it accurately and the capital to close the deal quickly.

Frequently Asked Questions

What is the biggest factor that determines whether a second lien note is sellable?

The combined loan-to-value ratio is the most critical factor. A second lien note with a CLTV of 70 percent or less — meaning there is 30 percent equity in the property above both liens — is significantly easier to sell and commands a better price than one with a CLTV above 85 percent. The equity cushion above both liens is what protects the second lien holder, and buyers price accordingly.

Will the first lien holder know that I sold my second lien?

The first lien holder may become aware of the transfer when the assignment of the second deed of trust is recorded with the county, as it becomes a public record. However, selling your second lien does not require the first lien holder's permission or notification. The first lien terms and status are completely unaffected by the transfer of the second lien.

Can I sell my second lien if the borrower is current on the second but behind on the first?

This is a very challenging scenario for selling. If the borrower is delinquent on the first lien, the first lien holder could initiate foreclosure, which would likely wipe out the second lien entirely unless there is substantial equity in the property. Most buyers will be extremely cautious about purchasing a second lien when the first is delinquent. If this is your situation, acting quickly is important — the longer the first lien delinquency continues, the worse the outlook for the second lien.

How does a second lien note on land differ from one on a house?

The primary difference is in the collateral's liquidity and value stability. Houses in populated areas have large, active resale markets and relatively stable values. Raw land, particularly in rural areas, has a smaller buyer pool and can be more volatile in value. These factors mean that second liens on land typically sell at steeper discounts than second liens on residential property. The CLTV ratio is even more important for land-secured second liens because the margin of safety provided by equity is the buyer's primary protection.

Is it better to sell my second lien or try to negotiate with the borrower for a payoff?

It depends on the borrower's financial situation and willingness to negotiate. If the borrower has the means to pay off the second lien and is willing to do so, you might receive more than you would by selling the note to a third party. However, many borrowers are not in a position to make a lump sum payoff, and negotiations can drag on for months without resolution. Selling to a professional note buyer gives you certainty, speed, and cash in hand without the uncertainty of borrower negotiations.