The senior hard money lender won't allow a recorded second, so what is the gap lender actually holding

The membership interest pledge is the one people reach for and it has a trap in it. You file the UCC-1, the sponsor defaults, you foreclose the pledge and now you own an LLC that owes $600k to a hard money lender and holds a half-finished house. That is the problem landing in your lap, with no payoff in it. Worse, most senior loan agreements at that size include a change-of-control default. Exercising the pledge is itself the trigger, so the remedy accelerates the loan you are standing behind. If you go that route the pledge language needs the senior's written acknowledgment, which is the same consent conversation you were told you will not get.

Look at where your dollars sit rather than at the aggregate. Total debt of $700k against a $1.05M ARV reads as 67%, which sounds comfortable. Your $100k occupies the band from $600k to $700k of value. Sell at $945k, a 10% miss, take out roughly $65k of commissions and closing costs, and you clear about $880k. That still covers you on paper. Miss by 10% and overrun the rehab by $60k with nobody funding it, and the sponsor stops paying, and the senior's default interest and legal fees start compounding on top of the $600k. Two or three months of that plus a foreclosure timeline and your band is gone. The whole structure rests on the $180k rehab budget being real and the sponsor having reserves outside this deal, and at $100k of his own equity on an $800k project he probably doesn't.

So the question I'd push on isn't which instrument, it's who funds an overrun. If the answer is you, size your commitment now and price it, because a second advance made under duress is the worst money in the stack. Also check whether the senior can make protective advances that take priority over amounts already outstanding, which is common in bridge paper and enlarges the pile ahead of you. That growth happens with no notice to you at all.

At $100k a hard money shop will sometimes sign a short consent and standstill letter even when they won't allow a recorded lien, because it costs them nothing. Ask for it in writing. State law governs whether the pledge and any intercreditor terms are enforceable the way you expect, so have counsel in the property's state draft this rather than adapting a template.

If you do negotiate a right to cure the senior, price what curing costs. $600k at 11% is $5,500 a month in interest alone, plus taxes and builder's risk. Holding it for four months while you sort out a sale is over $25,000 on top of the $100k you already put in. A cure right you can't fund is decoration.

Does the preferred equity version change how any of this gets characterized, in that you would be an owner in the entity rather than a lender on the property? That is a question for a securities attorney, and it needs answering before the money moves.