A second lien that got paid out at 1.31x when the sponsor refinanced the whole stack

The 1.31x on a 28-month hold is real but I would push back on that being exceptional for a second lien that survived a mezz overhang. Running the math on deals I have been watching in secondary Connecticut markets, the ones that actually clear cleanly are coming in closer to 1.38 to 1.44x when you factor in the default interest that accrues during the slow payment periods. Two missed payments in 2022 on a note you bought at $38k, depending on your rate and whether you had a default rate kicker in the docs, that spread could have been worth another $4k to $6k at payoff. If it did not show up in your waterfall number I would go back and look at how the payoff was calculated because I have seen servicers just apply the note rate straight through even when the default provision was triggered.

The part that actually interests me here is the mezz holder settling out before you, and the refi proceeds being fat enough to trickle down to your position. That sequencing is the whole game in these stacked deals and it almost never lines up that cleanly. Bridgeport specifically had a weird 18-month window in 2023 into early 2024 where cap rate compression on mixed-use was pulling valuations up faster than anyone expected given the broader rate environment. A sponsor with a relationship lender could actually get a refi done at numbers that looked crazy on paper. I have been sitting on cash watching exactly this type of deal in New Haven and Waterbury for two years now and the ones I passed on because the stack looked too messy are the ones that keep coming back to haunt me.

What was your cure rights position if the sponsor had never refinanced and just kept missing payments?

28 months on a second lien in Bridgeport is actually short given how that market was moving in late 2022. I had a similar passive position on a note in New Haven, bought Q3 2022 at $52k, second behind a senior at about 71% LTV, and I am still sitting on it at month 28 with no refi in sight because the sponsor cannot get a lender to underwrite the mixed-use component at current rates. The difference between your deal and mine seems to be entirely that your sponsor had a relationship with a lender who would move, and mine is shopping blind. That is the part nobody prices when they buy into these stacks, the quality of the sponsor's capital network is almost more important than the LTV.

What was your basis for the $38k, was that par or did you pick it up at a discount from someone who got tired of waiting?

Bridgeport surprising people is almost a running joke at this point, and it keeps doing it. The mirror image of your outcome is common there too: a lien on a two unit on the East Side, same mental parking, except the refi window never arrives and the holder eats around $11k in legal fees chasing a borrower who files Chapter 13 the week before foreclosure can move. Same accounting you described, written off, then it turns expensive instead of dormant. The difference in your deal was a sponsor with a lender relationship ready to go, and that is the variable nobody has a clean way to underwrite ahead of time.

The part that catches me every time I read stories like this is the waterfall sequencing when a refi closes fat. Most second lien holders I've talked to in my research phase assume the proceeds just flow down in a clean line, senior gets cleared, then you get cleared, done. What actually happens in a lot of these is the mezz intercreditor can create a hold on disbursement timing even when there's more than enough money in the pot, and if your second lien docs don't have explicit language about how you sit relative to the mezz in that sequencing, you can end up in a 30 to 60 day limbo waiting for the mezz to formally release before the title company will cut your check. I've read through maybe a dozen second lien instruments in the last six months trying to understand exactly this, and maybe four of them had anything useful on that point.

The other thing I keep seeing that nobody seems to flag until after the fact is what the refi lender's title policy covers in terms of the prior lien payoff confirmation. If the refi closes and the new lender's title company is slow to confirm your lien discharged, you're sitting there with a paid-off note and no recorded satisfaction, which creates a cloud that can drag on for weeks and occasionally longer depending on the county recorder's backlog. Fairfield County in CT has historically been slow on that, or at least that's what I've pulled from public records digging. You got lucky the timing compressed on both ends, not just the refi itself but the close-out mechanics, and that's its own separate piece of luck that doesn't get separated out enough when people tell these stories.

A waterfall clearing all the way down to a second lien on a mixed use refi is not something most people would have bet on in that market in that window. The more typical version is a New Haven position of the same vintage, say $44k in at 71 percent LTV, where the refi comes in just thin enough that the holder takes a haircut to get out at 0.94x around month 31. Bridgeport moving faster than New Haven over that same period is still a little strange.

Seen three of these go the other way specifically because the sponsor's replacement lender got cold feet at appraisal.