How Does Note Broker Work?

Investors usually pay note brokers a commission, while retaining rights to future payments on the note.

For many people, the prospect of working from home and additional financial opportunities is appealing. One such method is note-brokering. While this effort may earn commissions, there are also dangers associated with purportedly fast, easy money-making.

Identification

A note broker is a person who engages in note-brokering. The broker becomes a third party between the holder or issuer of a note and an interested investor. The broker does not have to be an independent third party. They can be involved in the original transaction concerning the note.

Examples

Jane B. Quinn of the "Washington Post" offers this example. You sell your house to folks who cannot come up with the money down right away. They give you a promissory note which explains the terms of the finance instrument (the note). Using a broker who matches note sellers to note investors, you turn around and sell the note at a discount to an investor who gives you cash now in exchange for owning the note long-term. The note buyer owns the note and can seize the property if the borrower's default. You can also be a broker who acts on commission, actively seeking out notes from individuals.

Dangers

Note-brokering may be presented to you as a sort of get-rich quick scheme which always carries its concerns. You may be encouraged to participate in expensive seminars that may yield little payback over short-term periods. Remember, you are dealing with unpaid monies, as notes are a promise of payment, not actual capital.

References

• WP: Note Brokering; Harder Than It Sounds
• NoteWorthy: What Is a Note Broker?