Licensing and Note Brokering: What to Check in Your State

We know of no single national license made for brokering private notes, and no single answer on whether a state license applies to you. It turns on your state, the kind of note and what you do in the deal, so check before you start.

You will not find a yes or a no on this page. Nobody can give one responsibly without knowing your state and your plans, and the rules change. What the page can do is show which questions decide the answer, which bodies of law might apply and who to ask. It is general information within our note basics guide, and it is not legal advice.

Why there is no simple answer

Lending and real estate are regulated largely state by state, with federal law laid over the top. Each state wrote its rules at a different time, for its own reasons and in its own words. One state’s definition of a “mortgage broker” may reach only people who arrange new loans, while another’s may be broad enough to raise a question about people who arrange the sale of existing ones.

Brokering a private note also sits in an awkward spot. No new loan is made and no real estate is sold. The owner of an existing debt is being helped to sell it. A licensing law written without that activity in mind may still be worded widely enough to catch it, which is why you cannot assume such a law leaves you alone.

The facts that shape the answer

An attorney or a regulator will ask for these before saying anything useful.

Which states are involved: your own, the state where the property sits, and sometimes the state where the note holder or the payer lives. More than one may claim an interest.
What secures the note. A note on a home the payer lives in can draw more regulation than one on commercial property, raw land or a business, because consumer protection law is aimed at people’s homes.
What you do in the deal. Introducing two parties is one activity. Negotiating terms, taking title to the note and collecting payments are others.
How you are paid. A fee for arranging a sale, a spread from buying and reselling, and a simple referral fee can each be viewed differently.
How often you do it. One rule may apply only to people in the business of the activity, and another to a single transaction.

Areas of law to ask about

You do not have to become expert in any of these, only to know they exist so that you can ask a direct question about each.

Area	Why it might matter to a note broker	Who to ask
Mortgage lending and brokering laws	A state may regulate people who arrange, buy or service residential mortgage loans	Your state’s banking or financial regulator, and an attorney
Real estate licensing	A state’s real estate law may reach dealing in loans secured by property	Your state’s real estate commission, and an attorney
Securities law	Selling shares of a note to several investors, or pooling notes, can raise securities questions	A securities attorney
Debt collection and servicing	Collecting payments, or dealing in notes that are in default, can bring separate rules	An attorney
Seller financing rules	These govern how a note is created, and affect whether the notes you broker were properly made	An attorney
Marketing rules	Calls, texts, email and mail to note holders each have their own rules	An attorney
General business registration	Forming a company and registering it to do business	Your secretary of state’s office, and an accountant

The seller financing row needs a word of explanation. Rules on how seller-financed loans may be made are aimed at the people making them, yet they shape the product a broker handles. A note created outside those rules can be harder to sell, and a buyer will check, so a broker needs at least a plain-English overview of seller financing rules.

Activities that raise more questions

As a broad guide, the further you move from making a simple introduction, the more likely it is that some rule applies. Get advice before you do any of the following.

Work with notes on owner-occupied homes.
Take title to a note yourself, even for a moment, in order to resell it.
Negotiate changes to the payer’s terms.
Collect or handle payments from a payer.
Contact a payer who is behind about what they owe.
Offer one note to several investors in shares, or gather money from investors to buy notes.
Advertise to the public as a note buyer or mortgage professional.
Give a note holder advice on tax or legal consequences.

The item about investors deserves separate mention. Selling one whole note from one holder to one buyer is a different activity from splitting a note among several passive investors or running a fund, and the second can fall under securities rules where mistakes are costly. See a securities attorney before going near it.

Working with a licensed or established firm

A person new to the business may start by referring notes to an established broker or buyer and letting that firm handle the transaction. Whether a referral arrangement keeps you outside a licensing rule is itself a legal question, and it depends on your state, on what you do and on how you are paid. Put it to your attorney in exactly those words before you rely on the arrangement. How co-brokering a note deal works in practice is a separate matter from whether your state permits it.

How to get a reliable answer

Write down what you plan to do. The states, the note types, your role in each deal and how you will be paid. One page is enough.
Read your state regulator’s own website. Find the agency that licenses mortgage companies in your state and look for what it says about who must be licensed and who is exempt.
Ask the regulator in writing. Describe the activity and ask whether it needs a license. Whether and how an agency replies varies, so keep whatever you receive.
Pay an attorney to confirm. Choose one who works with lenders or note investors in your state. Give them your one-page description and ask for the answer in writing.
Ask again when your plan changes. A new state, a new note type or a new way of being paid can change the answer.

A course, a forum, a broker in another state and this page are all poor substitutes for that list, because people repeat what was true for them, somewhere else, some years ago. The first item costs nothing and can be done today.

If you are a note holder

Selling a note you own is an owner selling an asset, which is a different activity from brokering someone else’s, and nothing above stands in the way of finding out what yours would sell for: price my note is where that begins. If you hold several notes or create them regularly, ask an attorney whether that changes anything.

You can reasonably ask the person arranging your sale whether they are licensed or registered in any way and whether a deal like yours calls for it. You can also ask for the closing to go through a title or escrow company, so that a neutral party handles your documents and your money.