Category Archives: Articles


Welcome and thank you for taking the time to open and read the August Newsletter.  You know, when Dodd Frank (The Dodd-Frank Wall Street Reform and Consumer Protection Act) was enacted on July 21,2010, few in the Private Lending Community had little concept of the far reaching impact it would have on their business.  This is now clear as the new regulations begin to govern the mortgage servicing market and reforms Hard Money, Private Lenders and Investors including those who service their own loans. The risks are high both in penalties and for those with Real Estate Licenses, a high risk of disciplinary action.
It is important Investors know the rules, establish controls, enforce their internal policies and procedures, have the trained staff and right technology to keep accurate records and documentation to comply with the Consumer Financial Protection Bureau.   By the way, it is important also to note that – even if you service only “one loan” for others, you’re required to perform the Early Intervention Disclosure to the Borrower prior to filing an Notice of Default. Because, the Note Servicing Center services loans and notes for others and are fully compliant with the Dodd Frank Act, we stand ready, willing and well able to come alongside and provide necessary disclosures you are now faced perform.
Because of the new responsibilities, risks and costs associated with compliance, for the first time in 15 years, the NSC has had to raise fees.   Standard loan servicing still remains at a low one time Set-up fee of $25.00 and a $15.00 per payment fee.  You will notice a slight increase in the Schedule of Fees for Specialty Notes such as:  Notes with Impounds for Taxes and Insurance, Notes with Underlying Payments and Multi-Investor Loans.
To our clients, we thank you once again for the Trust and Confidence you have expressed in us as your servicer of choice.  We welcome new clients to experience the Loan Servicing we enjoy providing.  For information and a Schedule of Services and Fees, please contact us at:


Thomas K. Standen, President

Author: Randy Hughes, Land Trust University, Chicago, IL

What is a land trust? Why do I need to use land trusts? Both are very important questions. But let us be straight forward with this article. You have worked very hard to accumulate property for investment. You put yourself, you family, and your children’s future at risk investing in real estate.

Do you realize that one false move with just one of your properties can cause you to lose all of your hard earned investments. One careless tenant can be injured on your property and the world will fall all around you. Ask yourself the following question “Can you control what is happening at all of your properties right now – this minute?” Is it possible a careless tenant can be injured or die tonight in your rental property? This happens every day in America.

You need a land trust for each property. You need the knowledge that your attorney does not have on this asset preserving technique. Why work so hard over time to have one uncontrollable tenant event cause you to lose all of your properties? Come on! You have worked very hard to build your asset portfolio. Why lose it now!

Land Trusts are the first safety catch to insulate your self from the millions of lawsuits happening in America every year. Do you want protection from the contingency fee lawyer or would you rather have a bare knuckle fight with him without any defense guards in place?

You have probably noticed that it is VERY difficult to find any information about Land Trusts and how they operate. That is why people from all over the United States come to our website to find accurate information about Land Trusts. Most attorneys do not know how to set up and administer a Land Trust (they receive only three hours…if any of trust education in law school).

The problem is that most practitioners do not know how to set up and administer Land Trusts so many of them consequently advise people not to use them. However, you were probably told by someone (an attorney, accountant or friend) that you need a Land Trust, but nobody told you how or where to find information to help you get started. The point is, do not trust someone (that gives you advice) who does not have direct active knowledge of Land Trusts and their benefits.

We have been using Land Trusts in our full time real estate investment business for almost 30 years. We live and invest in Illinois (the Granddaddy state of Land Trust law) and use Land Trusts in our business constantly. We have found that often times advisors tell their clients, “You can not do that” with a Land Trust. Most of the time they are wrong!

Sure, 2010 sucked. The economy sucked. The housing market was lousy. And jobs became tougher to find.

You thought 2010 was your year to break out on your own. Create your own business – an online empire that would yield you income and financial freedom.

But then American Idol had a special, you had to find out what happened on the last season of Lost (and blog about it), and, what is that?… Sarah Palin has a reality show?

Frankly, you blew the year with distractions.

It is easy to do…I mean…distractions are so…well… distracting.

It is so much easier to chat about how Obama is some secret plant by the Soviets sent to destroy America or how Starbucks is adding stuff to their coffee to make people want to buy an accompanying muffin.

Hey, those are much better topics because, frankly, who the heck wants to look within for reasons of not accomplishing your goals?

Dare to peek into the looking glass? Then read on…

Here are the Top 7 reason 2010 sucked and how you can change all that for 2011.

1. Get Real – Quit cutting corners looking for some get-rich-quick program or new money-making shiny object with instant riches. There are plenty of ways to be successful but, guess what, they all will take work. Plan on learning about something in 2011. I mean really doing your homework – not just buy some box of CD’s that will sit by your front door until you sell them on eBay six months later.

2. Email Sucks – If someone sends you any email that says, “Make $1293.23 in two days,” delete it….FAST. Stop reading that crap. Those guys make money by selling the concept of making money. Period. That is it. Do you REALLY think some seven-year-old discovered the secrets of Google and made $10 million dollars on Adsense in her sleep? Get Real and just stick to reading emails from your kid (unless that is who is sending them to you).

3. Stop doing “work” and start getting results. It is easy to do busy work. Lots of stuff that, at the end of the day, didn’t earn you a dime but feels like you did something. Pretty logo’s, business cards, cute names for your company, color-perfect websites. Before any task, ask yourself, “Will this make me money?” If you can’t answer a big “yes,” in the short term…move on to something that will.

4. Set a real deadline already. Quit saying something is “in the works” or it will forever be in the works. When will it be done? Set a deadline (and actual date and time) and tell friends to kick you in the ass if you don’t meet it.

5. Quit Bitching You Big Baby– The world owes you nothing. Life Sucks…get a helmet. Either do something or don’t do something. But don’t make up a million excuses “why” you couldn’t do something. Some people spend more time making excuses than it would have taken to use that same amount of time to just do the damn thing. Just do it already or quit whining about it.

6. Stop Twittering, Facebooking, and playing Farmville. – That huge sucking sound in the background when you fire up Facebook is the sound of your life going down the drain. You are not a real farmer and you are not “keeping in touch with your friends” – you are maintaining a narcissistic website all about you (and that is ok if you are a Diva with nothing better to do). Don’t make excuses that social media is anything other than that. Want to talk to a friend? Pick up the frigging phone and call them – it probably automatically forwards to their Facebook account anyway.

7. Admit that several of these things apply to YOU. I did. It is easy to read this and say, “heck yes, those people are idiots!” In reality, you are probably one of them.  Absoultely, we all are.

So… the best advice I could give that would be all encompassing and get 2011 back on track to your goals…. “Stop it already.”  

I hope you have a great 2011. If you don’t, it is probably your own fault.
For more great blogs check out

One of the considerations when buying and selling mortgage notes is knowing the current value of the home. After all, the property is the collateral and knowing its true value will greatly affect how much an investor will pay for a note.

Historically this process was a bit easier, when everything was in an “up” market. But with property values still on the downside or just recovering, it is often difficult to put a (safe) number on it. At least one that everyone agrees on.

Although there are excellent programs on the Internet that help the average consumer to get an idea of value, they are not always accurate. The actual value of a property can be determined in a couple of credible ways.

Often, note investors get what they call a “drive by” appraisal or valuation.

Usually performed by a licensed appraiser, the report will include other sales or comps in the area. The main difference is a “drive- by” evaluation does not require the appraiser to have access to the interior of the property. The appraiser actually drives by and takes pictures from the street for the report.

Some investors are using what is called a Broker Price Opinion (BPO) – an evaluation based on the advice of a real estate agent or broker. They are often very similar comparable to a “drive by” and at a lower cost but do not follow the strict guidelines of a certified appraiser.

The note buyer may even require a full interior appraisal to get comfortable with the value. This might be the case when there are substantial improvements to verify or there’s concern over the property condition.

The actual approved or preferred method will be up to the individual investor. While they are buying the mortgage note and not the property itself, the value is still important in deciding risk, investment to value (ITV), and the price they will pay to purchase the remaining payments.

For more great blogs go to

Are you confused about the SAFE Act and how it may affect the way seller financed transactions are handled in the future?  Don’t feel alone, nobody seems to have a grasp on the relatively short (compared to the Dodd – Frank H.B.4173) National Safe Act model. The model for states to adopt was brought about, in my opinion, to provide relief to buyers of residential property from supposedly unscrupulous lenders and brokers. This relief is in the form of documented disclosure of sale terms, and oversight of qualification of a buyer’s ability to repay under the terms of the agreement.  It is thought that this Act would, among other things, reduce potential defaults on residential property and restore property values to former levels, as well as inform borrowers of the details of the transaction (remember all the stacks of paperwork to sign – which no one reads?). The SAFE Act was implemented as a model uniform national code for auditing these transactions through the various state regulated Finance Code laws already in place. In most states this auditing is administered through licensing of individuals engaged in the activities of Residential Mortgage Originators for regulated loans.  The SAFE Act adds seller financed transactions as a regulated transaction. Therefore, a person or entity that initiates a seller financed note on a residential property must be licensed as a Residential Mortgage Originator, just as the banks and wholesale mortgage lenders are required to be. The national SAFE Act law originally applied to sellers using this method of repayment for residential property for even a single transaction. This was later amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, to exempt up to three transactions in a rolling year. It is questionable as to when the Dodd – Frank will be fully implemented. In the meantime the National model is now in effect and all States are required to follow the National model or an approved revision.  Some states also may follow current de minimus exemptions already on the books until further determination or subsequent statutory amendment requires otherwise (a slippery slope!).

Based upon the questions and comments I receive as a licensed RMLO in the state of Texas, there seems to be three areas of confusion that I would like to address in this article and they are: Who has to be licensed? What transactions are covered under the act? How does the ACT affect seller financed transactions?

The SAFE Act national model, adopted by each State, goes to great length to set out licensing requirements as well as to set up a national registration for all RMLO’s.  This national registration adds a national test that must be passed in order to become an RMLO that is in addition to specific state testing and education requirements. Obtaining an originators license is not as simple as it first appears. There are three basic aspects of licensure. First, the applicant must obtain the license. This involves a  required number of hours of education and federal background and credit checks. Second, it  involves obtaining the sponsorship of a Licensed Mortgage Broker to hold and supervise your license, maintenance of all records pertaining to each transaction and reporting and auditing by state regulatory agencies. Last, it involves the requirement for continuing education and license renewal.  Additionally, a skill set must be obtained in the practical application of the mandatory process required by the originator in knowing, understanding and disclosing of the proper documents to the note maker. Traditionally, a licensed originator has been considered a full time occupation.

The key wording in the SAFE Act pertaining to licensure revolves around an individual performing the “acts” of an RMLO.  Specifically, anyone engaged in the taking of an application, negotiating terms of the financing, advertising financing and proper disclosure to the buyer, must be licensed under the SAFE Act. There are exceptions to the rule to be mentioned later. The SAFE Act and the requirement for licensing is intended to make sure that every buyer receives every disclosure, and receives it from a licensed RMLO.  It is the person performing the “acts” that must be licensed.  There is no specific wording, as I can see, that says the lender has to be licensed (unless he performs the mentioned “acts”).  In Texas, where the regulatory agency is the Department of Savings and Mortgage Lending, the Department interpretation is that a third party origination by a licensed loan originator is in compliance with the law.  Other states may have made the same determination. One should check directly with the state regulatory agency to confirm.

The confusion surrounding the types of transactions that are covered under the act, stem mostly  from the definition of “dwelling” set out in the Act. The SAFE Act specifically covers 1-4 unit residential dwellings (dwellings as defined in the Truth-in-Lending Act). This includes any property that is to be used by the buyer as his principal residence. Mobile homes are included as dwellings in the Truth in Lending Act (TILA). Land and lots specifically sold for the primary use as a residence, either now or in the future, are also included. So the exceptions to the Act occur when the sale of the property is to an “investor” who is not going to reside on the property or large tracts of land sold with no intention for a residence to be built on the property. There is also an exception for an individual who is selling his own home in which he currently resides. Commercial property is also exempt. Farms and ranches where there is a primary residential dwelling that is going to be occupied by the borrower, and had not previously been his primary residence, would be considered a regulated transaction.

The Dodd-Frank amendment to the SAFE Act raises the requirement for licensure from every transaction to those who engage in three or more transactions in any 12 month period. Along with that amendment are some exceptions to this exemption that require a license. These exceptions will certainly effect many seller financed transactions and include notes with balloon payments and rates that adjust within 5 years of inception. The Dodd – Frank also puts the burden of proof and documentation of the reasonable ability of the borrower to repay the loan directly upon the seller. The interpretation of the “reasonable ability to repay” is not defined in the amendment.

All of the laws, exceptions, lack of definition and the resulting confusion leave many to wonder about the fate of seller financed transactions. I, for one, do not believe the law is intended to outlaw or unreasonably restrict a seller from financing the sale of his residential property. However, since it is residential and represents a substantial investment to most buyers, appropriate disclosure by a licensed RMLO is required and I believe a reasonable analysis by a seller will reveal that the law is not too far removed from the intentions of the parties.  Most sellers I speak with want to be sure the buyer is adequately informed and already provided some  required disclosures as a normal course of business. The SAFE Act will affect real estate investors in that an additional step in closing a transaction will be added in the form of proper disclosure and licensing. Licensing and auditing includes the requirement to maintain an office open to the public, the keeping of transaction records for a specified period of time and annual continuing education and license renewal. Investors will find that title companies and attorneys will not complete transactions if the origination of the transactions is not by a licensed RMLO. In my research I have read that the institutional and large note buyers are or will require proof of licensed origination as an additional document in the note package. This, it seems, could make a note not originated properly less marketable or be subject to a larger discount to offset potential risk if the note were audited or if default occurred. At the present time, there is not a formal document that I am aware of that could become part of a file to evidence that the note was properly originated, and the SAFE Act does not contain a provision for one.  In the transactions that we undertake, a certification is provided to the title company or settlement agent, as well as the seller financer, that the transaction was originated by a licensed originator. We provide our licensing information and the contact information of the regulating agency for verification.  We are also required by state law to provide contact information for the filing of complaints against our company or license.

In the state of Texas, there has never been a complaint filed for a seller financed transaction and I suspect other states have the same record. However, this new law adds the element licensure that, even though troublesome, is probably something we all saw coming for quite some time.

Sections 1073 and 1074 of the Senate Version contain sections that will impose severe restrictions on “seller carry-back” financing of real property (commercial, residential and agricultural), i.e. such a seller will only be allowed to finance one property every 36 months. Seller financing is a successful financial tool for small businesses and minorities alike.

The unintended negative consequences of these 2 sections are enormous:

1) Limits credit in urban and rural areas where institutional financing is scare.
2) Many times, seller financing is the only alternative available on properties in need of rehabilitation and renovation. Banks and institutional lenders are wary of lending on such properties. With less properties being renovated, less jobs in the construction trades will be needed, leading to even more unemployment and blight.
3) Many seniors contemplating retirement were counting on selling their rental properties and holding the mortgage (owner financing) and living on the monthly payments received. As bank accounts are paying 1-1.5%, the opportunity to earn 5-6% on Seller carry-back financing can be the difference between living their golden years independently or living in poverty.
4) Real estate will soften even more as there will be less capital and / or credit available to keep the market moving. Property under $60,000 is not likely even to be considered by financial institutions for loans.
5) Houses will become less affordable. Banks charge points, application fees; escrows, etc that often exceed $7-$10,000 or more in closing costs. Seller carry-back financing rarely involves points, application fees, etc.

Currently there is a bill in the House Ways and Means Committee; HR 3440 “The Installment Sale Bill” that would have the opposite effect of the two sections described above than HR 4173. This bill would allow “dealers” to take installment sale tax treatment. It would have the effect of opening credit at no cost and expense to the US taxpayer, create jobs and increase revenues to the government. Rep. Bill Pascrell and Rep. Peter Roskam are the primary sponsors. Other sponsors include Rep. Adler and Rep. Andrews from NJ and Rep. Eric Cantor from VA.

We would urge the members of the Conference to seek to have the provisions discussed above eliminated from the final draft. Allowing them to remain will cause financial problems our nation can ill afford and is contrary to public statements of opening the financial markets to the public and the importance of helping small businesses.

Modifications supported by:

National Association to Protect Private
Property Rights
Texas Land Developers Assoc.
NJ Assoc. Real Estate Professionals
Seller Financed Note Industry
Real Estate Investor Organizations

Unless you’ve been a cave for the last three months, you have no doubt heard of the unique opportunity to save that our Government has given us for this year only. Everyone, regardless of their income can now convert a traditional IRA or pension plan to a Roth IRA. Moreover, while there is still tax to be incurred (the amount of the conversion hits the first page of your 1040 as income earned), you have the option to defer the tax entirely in your 2010 tax year and to spread it equally over the tax years 2011 and 2012. In other words, Roths are on sale for 2010 — buy now, pay later. But it gets even better, because you can change your mind until October 2011, if you decide conversion is not for you, and reconvert (“recharacterize”) to your IRA or plan without tax or penalty.

Now that you know what the Roth conversion opportunity is all about, for this and the next few posts, I am going to discuss some of the many considerations, rules, and strategies to consider to determine if conversion is right for you.
Let’s start with the basics and point out who is:

Most likely to benefit most from converting:

• A young person, whose retirement is decades away, and who can afford to pay tax now in order to enjoy an easy retirement later. $10 a week or $40 a month with tax-free compounding at 8% for 30 years would yield $140,000 in retirement savings. If you were to save $200 per month you’d end up with $1,050,000.

• Someone who has a chance to hit a homerun on an investment, like someone forming a new business. Hockey-stick investments accomplished tax-free and then compounded for life can result in phenomenal amounts. I know of someone investing as little as $1,800 in their own startup through a Roth IRA who in a little over ten years as grown that to several hundreds of millions all tax-free, and they are still 20 years from normal retirement!

• Someone, who has no need for near-term liquidity or withdrawal from their retirement savings, and whose current retirement investments are substantially devalued as a result of the recent recession, but are expected to recover in the future. For example, people owning real estate in their IRA who have experienced devaluation due to the market conditions can convert at these lower values, paying less tax, and then allow them to recover tax-free in their Roth IRAs.

• People who believe that tax rates will increase substantially in the future and that the combination of their tax bracket and tax rates will place a larger burden on them in the future than their tax impact from converting, are persons to consider converting.

• Those who want to leave their retirement savings to their heirs. Once funds are converted to a Roth IRA, they will grow tax-free during your lifetime and yours heirs at your death (if named as your beneficiaries and your custodian handles stretch or inherited IRAs). Your heirs will also pay lower estate taxes (which go back into effect in 2011), because the Roth funds have already been taxed.

Less likely to benefit from converting:

• Someone who has to use funds from their IRAs to pay the tax for the amount converted. You will be effectively paying tax on some of your money taxed, as the money used for paying the tax will be taxable when withdrawn to pay the tax on the remaining amount that is converted.

• Those who intend to leave their IRA to a charity. They will be incurring a tax from conversion that could be avoided if they left the money in their traditional IRA and then donated the money tax-free to the charity.

• Those who think tax rates will decline or that their tax bracket will be much lower when they withdraw funds from their IRA at retirement.

Some other factors to take into consideration when deciding to convert or Not convert to a Roth IRA. Click here

Since 2006, the mortgage industry’s fall from grace has been both spectacular and disastrous. 401Ks, IRAs, and other investment plans all took an enormous hit because of it. As bad as things have been since then, most of the opportunities from the mid-2000’s have been replaced by (dare I say) even better opportunities for the individual investor.

Think about the market pricing for anything real estate-related three or four years ago. Someone with limited investment funds had virtually no way to penetrate the market as real estate prices assured that all but the large institutional investors were priced out of the market. My, how things have changed.

I’m going to veer off the beaten path here and talk about sidelines. You know, the things that mark the boundaries of any sports field. The sidelines are where the players who aren’t quite good enough to make the starting team stand, waiting for their opportunity to get in the game. If the player they are meant to replace never comes off the field, the reserves never get the chance to play, and they never get the chance to get better.

For years, we small investors watched as the big institutional players got all the playing time, and scored all the touchdowns, hit all the homeruns, (insert your favorite sports analogy here); in essence, bought all the best notes. Then came the subprime crisis of 2006-2007, when most of the big players got badly injured and, in some cases, got knocked out of the game permanently. The playing field has changed dramatically, and we all now have a chance to get in the game.

As the Editor/Owner of the NoteWorthy Newsletter, I receive dozens of phone calls every week from people who really want to play, but are afraid to leave the relative safety of the sidelines. My question to every one of them is the same: What are you waiting for? Prices to come back up to where they were? How do you expect to grow wealth with a sell low / buy high mentality? Nothing ventured, nothing gained, I say.

Part of my business is trading REO (real estate owned) from banks, mortgage companies, etc. that has become such a headache the holding companies just want to be rid of it. Because they didn’t play the game smart the last few years, they are now being penalized (sticking with a sports analogy) and are losing millions in these sales. As Warren Buffett likes to say, buy when everyone else is selling, and sell when everyone else is buying.

Me? I’ve decided to start buying. Each time I bid a portfolio of REO being liquidated by a bank, I search out properties that are close to where I live. I guess you could say I like the home-field advantage. I then submit my bid for the individual property along with the bulk prices I get from my institutional REO buyers. Just this week I bid $5,000 for a property listed for $35,000 and tax assessed for $50,000. I should know next week if I’m awarded the bid. If I am (and there’s a good chance I will be), I plan to provide owner financing to a credit-worthy borrower. If I can get a $5,000 down payment from them at time of sale and finance the rest on a 10 – or 15 – year note, it pretty much looks like a slam-dunk to me.

There are also opportunities in buying existing notes that we haven’t seen in years. My strategy above just fits better with my business focus right now, but you can find similar bargains in notes. It takes determination, focus, and execution. Oh, and you need to take a risk now and then. And you certainly can’t do that standing on the sidelines.

Once a year the professionals in the note business get together for the NoteWorthy Convention. Think of it as the Super Bowl for getting educated on the note business and all the opportunities therein. Visit for registration information.

Avoid fumbling your investment decisions by attending the convention and getting first-rate coaching from the most successful professionals in the business. If you’re still standing on the sidelines, it’s time to buckle up the helmet and hustle on out there. Take that ball and run with it. What are you waiting for?

The word is out and seller financing is on the rise as buyers and sellers look for creative ways to finance property in the struggling market.

So what’s all the hype? Here are ten advantages to using the seller carry back to buy or sell real estate.

1. Shorter Marketing Times – Properties marketed with “Owner Will Finance” will draw a greater response rate and generally sell at least 20% faster than properties requiring conventional financing.

2. More Buyers – With many lenders’ tightening their approval process, the seller carry back enables a greater number of buyers to purchase and finance a home.

3. Speedy Closings – Without the red tape of a conventional mortgage lender, a real estate transaction can close in as little as two to three weeks.

4. Maximize Selling Price – The seller has an opportunity to realize full market value for a property when providing financing. This is viewed as a sales concession in many markets

5. Reduced Restrictions – Restrictive lending requirements don’t apply providing greater flexibility when it comes to the buyer’s credit history, down payment, debt to income ratios, and other underwriting criteria.

6. Fewer Costs – There are no expensive loan costs to worry about. A buyer can put the money they save on origination fees, points, underwriting fees, mortgage insurance premiums, and junk fees towards the down payment and building equity.

7. Interest Income – The seller is able to collect long-term interest since they are essentially acting as the bank by extending terms to the buyer. On average a buyer will pay back 2 to 3 times the amount of the mortgage on a 30-year term as a result of interest.

8. Installment Sale Tax Deferral – When property is sold at a gain and subject to tax there can be an opportunity to delay a portion due when reporting under the Installment Sale Method (Refer to IRS Publication 537, Form 6252 and speak to a qualified tax professional for further details).

9. Secure Asset – The balance of the purchase price is collateralized by the property. If the buyer stops making payments the seller can take back ownership of the home.

10. Liquid Asset – The seller owns a liquid asset, which is just a fancy way of saying somebody will purchase the note, mortgage, trust deed, or contract on the open market. Many sellers elect to sell their future payments to a note investor or note buyer for cash today rather than payments over time.

Seller financing offers a creative solution to financing real estate but there are some risks. For the flip side of the coin be sure to read the The Downside of Owner Financing – Disadvantages to Providing Financing. It also pays to consult with qualified real estate, tax, and legal professionals to make sure today’s solution doesn’t turn into tomorrow’s problem.

If you are considering buying and selling seller financed notes secured by real estate you may want to do a little research on any regulations or licensing requirements your particular state may require. Of the very few states that have any regulations at all, regulatory agencies are starting to crack down on non-complying or unlicensed note brokers. One such state is California and since that is the state I work out of I did some current up to date research and got some very surprising answers as you will read below.

Between February 19, 2008 and April 24, 2008 I exchanged emails and spoke to over the phone Gary Sibner, the Managing Deputy Commissioner III with the California Department of Real Estate in the Mortgage Loan Activities Unit. I’ve been trying for months to get a straight answer about the licensing requirements for note brokers in and out of the state of California for quite some time and I think this article will finally give you some clarity. It may not be what you want to hear but it is fact.

Although they would not put anything in writing the answers and information below are taken from various emails and conversations with Gary Sibner. Mr. Sibner stated that, “…the DRE does not provide written opinions except under Article 5 of the Real Estate Law (Sections 10230, et. Seq.) And this subject does not fall within Article 5…”

So he went on to explain Section 10131.1 of the Business and Professions Code deals with persons acting as a principal, which is using their own funds. Persons acting as brokers, and not as principals, are not covered by that section of the law. Section 10131(d) and (e) also provide for the licensing requirement of those who broker real estate secured notes. Also, a California Attorney General’s Opinion covered the issue of “with the public” to include financial institutions. The location for that is 68 Op. Gen. 286 (Opinion No. 84-903) October 23, 1985; to Mr. Sibner’s knowledge, that opinion is still effective.

We have always gone by the guideline that an individual is allowed to broker 7 notes per year in California, and then you have to have your Real Estate Broker’s license. Well, that’s not exactly the case. If you purchase the notes for your own account to hold them you can buy as many as you want per year and you would not need to be licensed. If you purchase notes for yourself and then subsequently resell those notes the next day or at a later date you are allowed to do seven of those transactions per year and then you will be required to have your Real Estate Broker’s license.

Here it is – If you solicit for and broker notes to institutional, individual or private investors, in or out of the state of California you are required to have either a Real Estate Sales Agents license that is hanging under a supervising Real Estate Broker OR your own RE Broker’s license. Even for just one note. I then asked Mr. Sibner some pointed questions to be sure there is no gray area moving forward, the questions and answers follow:

Can an individual in CA solicit individuals who are holding notes secured
by CA real estate without a CA RE Brokers license? NO – Business and Professions Code 10130

Can an individual in CA solicit for and broker notes where the property
<!–[if !supportLineBreakNewLine]–> securing the note is outside of CA without a CA RE Brokers license? NO.

Can an individual from out of the state solicit individuals who are holding
notes secured by CA real estate? NO.

If an individual in CA brokers notes to institutional corporate investors
and not to individual investors do they need a CA RE Broker’s license?

If an individual in CA refers notes to institutional corporate investors
and not to individual investors for a referral fee do the need a CA RE
Broker’s license?


However, there is a narrow “finder’s” exemption that if the referrer or “finder” did NOT solict nor engage in negotiation with the note holder they can earn a fee without a CA RE Broker’s license. Be careful, read the words. If we are in the business of note brokering and note buying then we will be soliciting note holders and thus, again, we would need to have a CA RE Broker’s license.

If an individual lives in CA can they broker 7 notes a year before they
<!–[if !supportLineBreakNewLine]–> need a CA RE Broker’s License? NO – Business and Professions Code 10131.1 – unless bought as a principal using your own money. Mr. Sibner also stressed that you must be using your own money for the 7 notes rule to apply. Meaning you cannot go around this rule by just doing double documents and putting the note in your name for a day then assigning it over to the actual end note buyer the next.

If an individual does not live in CA can they broker an unlimited amount of
CA notes or the same 7 notes a year secured by CA real estate before they
need, if at all, a CA RE Broker’s License?

NO – the same regulations apply – if you are brokering a note in California and you live out of state you must have a CA Real Estate Broker’s license or a CA Real estate Agent’s license hanging under a supervising CA Real Estate Broker. If you are buying them for your own account to hold them for the entire term you can buy as many California notes as you want without a license.

If an individual in another state brokers notes to an out of state
institutional investor but the property is in CA, do they need a CA RE Brokers license? And does the 7 notes in year apply to them as well? YES.

What are the ramifications or penalties if someone is caught doing this
business without a license for the above scenarios? For note brokers in CA? For out of state note brokers? Etc.

They will be served a Desist and Refrain Order. If it is not followed and another Desist and Refrain Order is served it would be brought to the attention of the CA state Attorney General and could be prosecuted by the California Attorney General’s office as a misdemeanor.

So let me sum it up for you. If you are in the business already or if you are new to the business and just starting out and you are going to be buying every single note for yourself with your own money and never resell them then you do not need a CA Real Estate Broker’s License to do so. However, if you will be soliciting for and brokering notes inside or outside of California, whether you live in California or not, you must have a CA Real Estate Agents license hanging under a supervising CA RE Broker OR have a CA RE Broker’s license yourself.

On a more positive note, Mr. Sibner did mention the fact that in the 15+ years he has been with the CA DRE they do get calls from individuals asking about the licensing requirements for a note broker. However, he stated, they rarely get calls from note buyers or note sellers complaining of fraud, misrepresentation or negligence. I guess the entire ethics and integrity of the note business is doing well, let’s keep it up.

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