Question: What does a lender in first position have to be concerned with regarding 2nd lien holders? Why would they not want to negotiate with the Owner until the 2nd lien holder goes away?
Nothing… they are in first position. However, the lender in first position wants to get paid in full. They don’t like it if they discount the loan and money also gets paid to the 2nd. They also understand in most cases the 2nd won’t settle for nothing. So sometimes they will actually tell you what they will allow the 2nd to receive as a payoff if the 1st agrees to accept a discounted price.