Posted by Mike A on August 24, 2002 at 12:03:59:
Thank you Mr. Butler for your response, very helpful !
You need Lic. in Calif. - Posted by Mike A
Posted by Mike A on August 23, 2002 at 12:21:18:
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.
This excerpt was taken from the California State Dept. of Real Estates FAQ page.
Not… - Posted by David P. Butler
Posted by David P. Butler on August 23, 2002 at 13:36:48:
Hello Mike,
Looks like you’ve made the mistake of presenting a piece of a statue, and holding it out out as the real deal!!! That’s the reason we consistently recommend that folks refrain from legal type posts of this nature in Discussion Forums… the result is a lot of bad information circulating around, even from well-intentioned people. And this one issue here, has been dealt with countless times already here in the Cash Flow Forum…
There is a lot more to both the note business, and California’s licensing laws, than the one limited scenario that you suggest here… though helpful in basic research context - woefully inadequate when
you fail to include the full scope of the statute, or the necessary annotations.
Let’s have a quick look see - focusing on the key words… in the limited part of the statute you cited from…
**The activity described ** (tells you right off that the part of the statute you are providing here, applies to the activity described), so-called note brokering, requires a real estate license if performed in California. This includes the solicitation (describes an activity related to a broad application of amended statute of 1959 - ruled to be inapplicable in activities a typical note broker performs in relation to the “Finder Exception” under Tyrone v. Kelly, California Supreme Court in 1973, as cited in Annotated Statute in B&P 10131 at n 6 - which held, among extensive explanation, that “To hold that any act of solicitation of a borrower or lender would preclude a determination that a person was a finder would in effect eliminate the finder’s exception to the licensing law.”,) 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 (obviously does not apply if one does not do, or does not negotiate to do, the acts stipulated, right?)…
The part of the code you are reading as presented doesn’t apply to the typical note operative (only those who are out there trying to “represent” somebody as their agent - which includes being involved in negotiating a deal between the parties); and though it also technically is wrong as they have applied the term in view of people who do commit acts that require brokers licenses, the “solicitation” clause doesn’t not apply to the activities we should be doing - per Tyrone vs. Kelly - which is buying a note; or finding a note, and introducing a buyer to it. Says so right there in the Annotations of B & P Section 10131, n 6 in the brand new copy of the California Codes (and older copies too!). In the brand new copy, it is right there on pages 84 and 85. Somehow, you must have missed that!
Back to your statute citation…
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.>>
Comment - Yep… in that one area above, they are close… but again, it is already clearly stated in the context of solicit and negotiate, on behalf of another, right?!
Any knowledgeable note operative only negotiates his own purchase contracts, or he only presents information to an investor, who then pays if a finder fee, IF THE INVESTOR NEGOTIATES the purchase or sale of a note for himself.
Then go on to the operative law as it pertains to note buyers, at Section 10131.1 of the same statute… There, it clearly states that you can acquire for resale “to the public”, up to seven notes in a calendar year. You have unlimited ability to acquire as many as you want for your own investment. And no note acquired from, or through, a real estate licensee counts against that total.
Now first thing to note… this has nothing to do with “representing” a buyer or a seller. If you “represent a third party” for those acts in California, then yes, you do need a license. When you negotiate a contract for yourself, you do not need a license, unless you are purchasing solely for resale to somebody else, and you do that more than seven times in a calendar year. And what if you just simply operate as a note finder… locating a note for sale, gathering all the necessary information, and then, negotiate the sale of that information to a buyer (not negotiating the actual purchase of the note for either the buyer or the seller - just your finder fee, negotiated with whomever is paying it too you (which he agrees to pay you for if he buys the note in question)? Again, unlimited activity under California law. Or, what if you agree to purchase a note, and then sell a partial purchase of that note to an end-buyer, keeping the remainder for yourself, as an investment? The code makes no mention of that activity whatsoever, right!!!
And though the California attorney general’s office has issued an opinion that selling a note “to the public” also includes any sales to an institutional note buyer… many knowledgeable attorneys in California disagree. And it hasn’t been established through any case law. But, several of the other states that do have similar limitations specifically exclude the sale to institutional buyers as being “to the public”… which would certainly be an argument for the defense if one of us ever got taken to court, or in front of a DRE administrative hearing. But even with that “gray area” advantage… so what - we really don’t need it. You have seven “freebies” each year. You have unlimited purchases to resell if you acquired the notes from people who do have licenses. You have partial purchases that allow you to keep notes for yourself as an investment, while selling the remainder for enough to pay for the purchase price you paid. And you can utilize the “Finders Exception” all day long - so far as I can tell (though I can read law, I am not an attorney!!!).
As we have repeatedly stated in the overly repetitious posts on the licensing issue, a Discussion Forum really is not a good place to chase down that kind of information!
First… spend the time down at your local law library to get comfortable with what your own eyes tell you!!!) Then… you always want to clarify any legal issues that concern you with your own competent legal counsel - particularly in the context of your intended activities out in the note markets;-)
Hope that helps clarify this matter yet one more time, and best wishes for your success in ferreting out what the statute really says! And best of luck in your future investing endeavors!
David P. Butler
Re: Not… - Posted by Cecilia Vasquez
Posted by Cecilia Vasquez on July 16, 2003 at 01:02:43:
Dear Mr. Butler,
You are my hero. I am just starting my note business and I cannot thank you enough for clarifying being a note finder versus a note broker. I already had my first interaction with a supposedly “knowledgeable” Mr. Know It All who wanted to discourage me from pursuing financial endeavors in the note business. He told me I could not operate my note business without a real estate license in California. He even said that if I could not provide him with a license then I would be reported to the Department of Real Estate. I decided that the note business is what I want to do for the rest of my life and decided not to just take his word for it and research the laws and regulations surrounding the note business. I feel much more confident after reading articles in your message board. This is how I understand how the note business works for me (in simple context): “I am a note purchaser, note finder, and note referrer. I am not representing or negotiating a note transaction between the buyer or the seller. I am finding the note and referring it to the buyer. The buyer pays me a finder’s fee for finding and referring the note.” As to what I interpreted in your message board articles, this is acceptable under any State law and particularly in California where I will be conducting my note purchasing, note finding & note referring business.
Thank you for all your expertise Mr. Butler. As a newbie, I greatly appreciate.
Cecilia Vasquez