Legal Definitions - note broker

A note broker is a professional intermediary who specializes in connecting individuals or entities that wish to sell their promissory notes (promises of future payments) with investors who are interested in purchasing those notes. Essentially, they facilitate the buying and selling of these future payment streams, often earning a commission for their services.

Here are some examples to illustrate the role of a note broker:

• Imagine a small business owner, Sarah, who sold her company and received a significant portion of the payment in the form of a promissory note, promising her monthly installments over the next five years. Sarah suddenly needs a large sum of cash for a new investment opportunity and doesn't want to wait five years for all her payments. She contacts a note broker. The broker then finds an investor willing to buy Sarah's promissory note at a discounted lump sum. The broker facilitates the entire transaction, ensuring both parties agree on terms and that the legal transfer of the note is completed.

  This example demonstrates how a note broker helps a seller (Sarah) liquidate a future payment stream (her promissory note) by connecting her with a buyer (the investor) who is willing to provide immediate capital.

• Consider David, who won a state lottery with a payout structure of annual payments for twenty years. While initially happy with the regular income, David now wants to purchase a new home and needs a substantial down payment that his current annual lottery payments can't cover quickly enough. David approaches a note broker. The broker works to find an investment firm or individual investor interested in purchasing David's future lottery payments in exchange for a lump sum payment today, albeit at a discount. The broker manages the negotiation and paperwork to transfer the rights to those future payments.

  Here, the note broker acts as an intermediary for David, enabling him to convert his future lottery winnings (which function similarly to a promissory note from the lottery commission) into immediate cash by finding an appropriate investor.

• A real estate developer, Maria, frequently sells properties with owner financing, meaning the buyer pays her directly over time through a mortgage note. Maria has accumulated several such notes and wants to free up capital to fund her next development project. Instead of waiting for years to receive all the payments, she engages a note broker. The broker markets Maria's portfolio of mortgage notes to a network of institutional investors and private buyers who specialize in purchasing these types of assets. The broker helps Maria sell these notes, allowing her to quickly access the funds she needs for her new venture.

  This scenario illustrates the note broker's role in assisting a seller (Maria) to divest herself of multiple mortgage notes, connecting her with investors who are specifically looking to acquire such debt instruments.