A junior lien payoff that came through escrow exactly as the paper said it would, and why the paperwork mattered more than the rate

Take a small three bedroom flip in a working class suburb, all in at 218k purchase plus rehab. Hard money senior funded 175k, the borrower brought about 21k of his own equity, and a junior lender filled the remaining gap with 22k at 12 percent interest only, two points, six month term, second position. Two things worth doing before funding a junior position, and doing again every time. First, ask for the senior's note and loan agreement, read the section on additional financing, and get the senior's written consent to the junior lien on the same page as their signature. Second, record the lien properly, which is a deed of trust in some states and a mortgage in others with different recording steps, and have the closing agent handling the eventual sale list the junior lender on the closing instructions as a payee with a written payoff figure. The loan closed at month five. Points at funding came to 440 and interest at payoff to 1,100, for 1,540 total on 22k over five months. The part that nearly broke it: at month three the buyer's appraisal came in 12k under contract price, and the borrower cut the price to hold the deal together. After commissions and the senior payoff there was roughly 6k left for the borrower. Another 15k off the price and the junior lender would have been the one negotiating a haircut on principal, since the senior gets every dollar of theirs before a junior position sees one. What holds up: written senior consent, a payoff statement sent directly into escrow, and reading the senior's documents before caring about the rate.