Paperwork discipline on an 87k second-lien note book inside a Roth

Consider 87k of Roth capital deployed into second-lien notes starting in 2022. The book: six notes, all seconds behind institutional firsts on owner-occupied houses in two midwest metros, bought at a discount from a seller who assembles them in small tranches. Average purchase 14,500 against average face of 19,200, blended yield on cost around 13 percent if all six perform, which they have not. Four of the six pay monthly without any contact required. One paid off early when the owner refinanced, returning 16,100 on a 13,200 basis in fourteen months. One stopped paying in month nine, which is the note that tests the structure. In second position with the borrower current on the first, there is no cheap remedy available, and with limited account cash on hand and a servicer quoting work that would eat most of it, a modified payment plan at a lower rate stretching the term out several years is often the more sensible path, likely returning face plus reduced interest eventually rather than a clean loss. A structure worth keeping: all income here is interest, so it sits on the exempt side inside a Roth and nothing triggers a 990-T, and avoiding any borrowing inside the account sidesteps the debt-financed income question entirely. A structure worth changing: holding only about 10 percent of deployed capital in cash against a book of seconds is too thin. Something closer to 20 percent idle is a more defensible cushion for this kind of position.