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Do I Need a License To Be a Note Broker In CA?

March 12, 2011 by Note Investor 9 Comments

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 on Licensing in California:

Hi,

Can you please tell me if you need a license to be a note broker in California?

Thanks, Marie

Note Buyer Answer:

Hello Marie!

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.

Photo of California Coast with Words "Do I Need a License to be a Note Broker in California?"

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, buy, 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/2019/relaw.pdf

Here is an excerpt from that California Real Estate Business and Professions Code code:

Broker Definition Continued – Buying/Selling Notes in California, etc.

10131.1. (a) A real estate broker within the meaning of this part is also a person who engages as a principal in the business of making loans or buying from, selling to, or exchanging with the public, real property sales contracts or promissory notes secured directly or collaterally by liens on real property, or who makes agreements with the public for the collection of payments or for the performance of services in connection with real property sales contracts or promissory notes secured directly or collaterally by liens on real property.
(b) As used in this section:
(1) “In the business” means any of the following:
(A) The acquisition for resale to the public, and not as an investment, of eight or more real property sales contracts or promissory notes secured directly or collaterally by liens on real property during a calendar year.

(B) The sale to or exchange with the public of eight or more real property sales contracts or promissory notes secured directly or collaterally by liens on real BUSINESS AND PROFESSIONS CODE 27 property during a calendar year. However, no transaction negotiated through a real estate licensee shall be considered in determining whether a person is a real estate broker within the meaning of this section.
(C) The making of eight or more loans in a calendar year from the person’s own funds to the public when those loans are held or resold and are secured directly or collaterally by a lien on residential real property consisting of a single dwelling unit in a condominium or cooperative or on any parcel containing only residential buildings if the total number of units on the parcel is four or less. However, no transaction negotiated through a real estate broker who meets the criteria of subdivision (a) or (b) of Section 10232 shall be considered in determining whether a person is a real estate broker within the meaning of this section.
(2) “Sale,” “resale,” and “exchange” include every disposition of any interest in a real property sales contract or promissory note secured directly or collaterally by a lien on real property, except the original issuance of a promissory note by a borrower or a real property sales contract by a vendor, either of which is to be secured directly by a lien on real property owned by the borrower or vendor.
(3) “Own funds” means either of the following:
(A) Cash, corporate capital, or warehouse credit lines at commercial banks, savings banks, savings and loan associations, industrial loan companies, or other sources that are liability items on the person’s financial statements, whether secured or unsecured.
(B) Cash, corporate capital, or warehouse credit lines at commercial banks, savings banks, savings and loan associations, industrial loan companies, or other sources that are liability items on the financial statement of an affiliate of the person, whether secured or unsecured.
(4) “Own funds” does not include funds provided by a third party to fund a loan on condition that the third party will subsequently purchase or accept an assignment of the loan.

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 🙂

Additional Resources for Note Brokers

  • Note Broker Training Online Course
  • Finding Cash Flow Notes Online Course
  • Owner Financing Increases in 2021 – State of the Industry
  • Financial Independence with Real Estate Notes
  • Think Only the Wealthy Can Purchase Notes? Think Again.

Filed Under: Note Brokers Tagged With: cash flow notes, Note broker, note broker license CA, real estate notes

Reader Interactions

Comments

  1. BB says

    May 8, 2020 at 11:45 am

    Ok, so it appears that the statute says eight or more contracts. I assume that means if I only do seven deals that I am clear. Can you confirm?

    In addition, what kind of license would I need? Real Estate Broker or Real Estate Agent?

    Reply
  2. aj wilson says

    October 29, 2017 at 12:39 am

    Maybe you can save me some time. I will be moving back to Milwaukee, Wisconsin next year. Do you need a “Note broker’s license Wisconsin” to do this.

    Reply
  3. Melvin Scales says

    October 9, 2016 at 12:12 pm

    Hello everyone,
    Just as an FYI, in North Carolina, a license is not required to broker seller financed notes for real estate and businesses. This was confirmed with two attorneys late in September.

    Reply
  4. Francisco says

    January 15, 2015 at 1:38 pm

    Hi,
    What type of license do i need to broker note in California? I am licensed Real Estate salesperson is this enough to do this note brokering?
    Thanks.

    Francisco

    Reply
    • Tracy Z says

      January 17, 2015 at 10:47 am

      Hello Francisco,

      I suggest contacting the California DRE directly on this matter to see how it applies to your situation. If it helps narrow it down it is Section 10131 of the Business and Professions Code which you can download from their site here: http://www.dre.ca.gov/files/pdf/relaw/2015/relaw.pdf

      Reply
  5. Helen King says

    March 31, 2011 at 12:33 am

    I am pondering getting in to the note networking business. I live in South Carolina. Does anyone happen to know the laws for this state? I have been searching but have not come up with an answer. I appreciate the help!

    Reply
  6. Michael says

    March 21, 2011 at 3:06 pm

    I did a search on this for Texas but came up empty. I have heard from a note buyer institution here in Houston that told me I do not need to be licensed but yet when I spoke with a Real Estate Advisor he told me I do need to be licensed. Do you have a verdict on thsi to help me out? Thank you.

    Reply
  7. Lathea Morris says

    March 17, 2011 at 10:14 am

    This is great and very useful information.
    Do you know where I can find out what other states require a license?

    Reply
    • TracyZ says

      March 17, 2011 at 6:40 pm

      Hello Lathea,

      One place to start is with an internet search. For example a search for the term “Note Broker license California” shows the link to the Department of Real Estate in the results.

      However, the information is not that easily found in all states. In fact a large number of states do not have specific licensing requirements related just to note consultants.

      When we are able to link to a definitive answer from a credible source we are happy to share our findings with readers on other states.

      If in doubt for your state we suggest contacting the department of licensing and/or consulting with competent legal counsel.

      Thanks for reading and commenting at Note Investor

      Tracy Z. Rewey

      Reply

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