This is a common question with a straight forward answer. Earlier this week we responded to this email inquiry and we’d like to share our answer with readers!
Note Broker Question:
Hi, Can you please tell me if you need a license to be a note broker in Ca.?
Note Buyer Answer:
Thanks for visiting NoteInvestor.com. While I am not an attorney (so unable to give legal advice), I’m happy to share with you my knowledge and resources.
California is one of the few states that have specific laws relating to note brokers and they license them under a similar structure at real estate agents.
Here is some helpful information straight from the Q&A section of the Department of Real Estate (DRE) in California.
Q. – I am not licensed as a real estate broker or real estate salesperson and I am only going to assist private parties who wish to sell their notes (secured by real property) for cash to another party (investor), perhaps in another state. Is a real estate license required if I conduct this activity in California?
A. – The activity described, so-called note brokering, requires a real estate license if performed in California. This includes the solicitation of California note owners, whether in person, by mail, telephone, or other means of communication. One of the definitions of a real estate broker is:
“…a person who, for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others:
.(e) Sells or offers to sell, buys or offers to buy, or exchanges or offers to exchange a real property sales contract, or a promissory note secured directly or collaterally by a lien on real property or on a business opportunity, and performs services for the holders thereof.”
There are companies engaged in the discounted purchase of certain mortgages, primarily those carried back by residential sellers and secured by the transferred real property. The companies hold seminars to recruit people to solicit and negotiate the sale of these mortgages. Seminar attendees are informed that they do not need a real estate license to engage in this activity. In California, this is wrong because the activity fits the definition quoted above. Source: http://www.dre.ca.gov/faq_mlb.html
Editors Note: The DRE has updated their site and moved the Q&A referenced. The items referenced are in Section 10131 of the Business and Professions Code that can be found here: http://www.dre.ca.gov/files/pdf/relaw/2015/relaw.pdf
As you can see from above, the California DRE is very clear in their answer! Yes, you need a license in CA to be a note broker.
California has also been known to actively monitor licensing in past years. If you run an ad in a CA paper that you buy notes, it is very likely you will receive a letter from CA DRE asking for your licensing information. It is safest to comply with the law or transact business in states without these requirements.
To you success,
Tracy Z. Rewey
The “NOT” so fine print…This information is not intended as legal or financial advice. Please consult with competent legal counsel pertaining to your individual situation. We are not attorneys at law – nor do we play one on TV 🙂