How to Become a Note Broker

You become a note broker by learning how notes are priced and documented, checking what your state requires, getting to know buyers, and then finding people who hold notes and want to sell. Finding the holders is the hard part.

No degree leads to this work and, as far as we know, no single national exam does either, which makes it easy to start and easy to do badly. Below is what to know before you speak to your first note holder, in the order it makes sense to learn it. Nothing here says what you might earn, because nobody can know that.

Be clear about what the job is

A note broker finds people who hold private notes, gathers the facts and documents on each note, takes it to buyers and manages the sale to closing. Pay arrives when a sale funds and at no point before.

Two consequences follow. A good deal of your time goes into notes that never sell, because the holder decides to keep the note, the documents turn out to be a mess, or the price does not suit them. And your standing with buyers and holders is the business itself: a buyer stops reading submissions from a broker who sends incomplete or dressed-up files, and a holder’s attorney remembers how their client was treated.

Pricing comes first

Every holder will ask why the offer is lower than the balance, and “that is what the buyer said” will not satisfy them. You have to be able to explain it with their own numbers.

Learn the time value of money well enough to work it on a financial calculator or a spreadsheet. A buyer picks the yield they need on their money and pays the price at which the remaining payments deliver it. When that yield is above the note’s interest rate, the price lands below the balance. As a plain example of the vocabulary, a note with $80,000 owed that sells for $70,000 carries a $10,000 discount, which is 12.5% of the balance. The calculation that turns a yield into a price is set out in how note buyers calculate a price.

Then learn what moves the yield: how long and how well the payer has paid (buyers call this seasoning), how much equity sits in the property, whether the note is a first or second lien, the type of property and the state of the paperwork. Learn partials as well, where a buyer purchases only some of the payments and the rest return to the holder, because a holder who needs a fixed sum will ask about them.

Then the paperwork

A note deal is a document deal. You should be able to pick up a file, say what each page is and notice what is missing.

The promissory note: the promise to pay, with the amount, rate, payment and term.
The security instrument: a mortgage, deed of trust or land contract that ties the debt to the property.
The closing statement, which shows the sale price and the down payment when the note was created.
The title policy, if there was one.
The payment history, ideally from a servicer or from bank records.
Proof of insurance and of paid property taxes.
The transfer documents: an assignment of the lien and an endorsement of the note, which move ownership to the buyer.

Knowing the pages is half of it. The other half is packaging them for buyers so that a price can be given without guesswork. It also helps to see the list from the other side. Read the form a holder fills in to ask us for a price as a broker would, and notice what you would be asking someone to hand over.

Your state’s rules, before any marketing

Whether arranging the sale of an existing note needs a license depends on the state, the type of property, who the payer is and exactly what you do in the deal. Rules on advertising, telephone and mail solicitation and privacy may also govern how you look for holders.

This site cannot tell you what applies to you. Read what to check in your state, write down what you plan to do, and pay for an hour with an attorney who works in this area before you market yourself.

Buyers before notes

You cannot answer a holder’s questions until you know what buyers want, so speak to several buyers first and put the same questions to each:

What kinds of notes do you buy, and which do you turn away?
Which states and property types?
Do you buy partials?
What do you need to see before you will quote?
How do you pay brokers, and is that disclosed to the holder?
Is your quote your own money, or are you passing the note to someone else?

The last of those matters because a firm that presents itself as a buyer may be a broker too. That is acceptable when everyone knows, but each extra party between the holder and the money is paid out of the same price.

Deciding how you will find note holders

People who hold private notes are spread thinly, nobody keeps a list of them, and a holder whose payments arrive on time has little reason to sell. This stage takes the longest for those reasons. County records show recorded mortgages and deeds of trust where a private individual is the lender. Attorneys, accountants, title companies and real estate agents meet note holders in their work and can refer them. And useful information published online is found by holders who have begun to look into selling.

Each route takes time before it produces a conversation, and each has rules attached, so compare the ways brokers find note holders before you spend money on any of them.

First deals, with help

The first few files teach more than any course. One way to start is alongside an established broker or buyer: you bring the note and the relationship with the holder, they bring the pricing, the buyers and the closing experience, and the two of you agree in writing how the pay is divided and what the holder is told. There is more to a co-brokering agreement than the split, so learn what belongs in one before you sign, and ask your attorney to confirm that your state allows you to be paid that way.

You learn what a clean file looks like, what buyers ask and where deals fall over, while the holder gets experienced hands on the sale.

What to be wary of

Income promises. Anyone who tells you what you will earn brokering notes is selling something. Deals are irregular and no course can supply the notes.
Expensive training sold as a requirement. You can understand a note without a certificate. The knowledge is learnable from plain sources and from working real files.
Quoting before you know. A number given to a holder before a buyer has priced the note is a promise you may not be able to keep.
Hiding your fee. It is the fastest way to lose a holder’s trust, and in some places it may break the rules.

A test before you speak to a holder

Try explaining a discount to a friend in two minutes, using a made-up balance and price, and see whether they can repeat it back to you. If they can, write a one-page description of what you plan to do and take it to an attorney in your state. The terms you need for the first task are in the note basics guide, and the licensing page has the questions for the second.