Am I liable if notes I sell / flip don't perform - Posted by ChuckP

Posted by John Behle on December 14, 1998 at 17:43:24:

People I use have only select clients. From what I’ve seen and read here, Bill Bronchick’s course would be the best bet.

Am I liable if notes I sell / flip don’t perform - Posted by ChuckP

Posted by ChuckP on December 01, 1998 at 18:31:18:


I intend to owner-finance a home-buyer with a 10% down, a 10% Second, and a 80% First.

A note-buyer is willing to buy the First paying 91% of the face value.

The question is: If the home-buyer fail to pay the new note-owner down the road, am I liable for paying him back his money. Is there something I can do to protect myself from that?

Thanks in advance, I am new in this,

Yes - unless you protect yourself - Posted by John Behle

Posted by John Behle on December 03, 1998 at 13:18:48:

Making the note “non-recourse” can help, but may not be saleable. Yet, even being “non-recourse” does not protect the broker or seller of the note.

There is implied recourse in the sale of a note unless you specifically exempt it. So, in this case, let’s say Paul is the payor on the note. Even if you made the note non-recourse with a clause like “the property is the sole security for this note”, the buyer of the note may still be able to hold you liable. It’s a different transaction with different laws that apply.

I’m not saying it wouldn’t help, or that you could possibly find a buyer to buy the note, it just doesn’t address the larger issue or your liablity as a note seller or broker.

Your “endorsement” when you sell the note is what is important here - extremely important. Even if a broker just receives a small commission for brokering a note, they can be held liable for performance on the note. I know of one student for example that took an expensive “Get rich in being a note broker” seminar that made a few hundred dollars brokering a note and then was sued for tens of thousands when the note didn’t perform.

This is one of the problems and risks in brokering notes that most do not understand or protect themselves from.

Your “endorsement” should specifically state that there is no recourse to you. This applies if you actually own and then resell the note. If you are just picking up a commission or fee for brokering the note, you still run a risk.

There was a case of fraud a few years ago where a funding company - that didn’t do their homework - and a paper broker - who didn’t do her homework - got into a large lawsuit. Both should have known better. One simple phone call could have prevented the entire mess. It is crucial to know what you are doing to protect yourself from liabilities in this busines. A one week course from a professed informercial guru is not enough.

I don’t mean to say for a moment that it is a risky business or it isn’t easy to protect yourself, just that most people out there do not teach you even the essential basics let alone what you really need to know to succeed and profit.

Make the note NON-Recourse - Posted by Ken

Posted by Ken on December 01, 1998 at 19:13:37:

By the way, depending on credit score of buyer you may be able to do better than 91%

Question for JB - Posted by Jim Simons

Posted by Jim Simons on December 11, 1998 at 13:07:35:

Thanks JB for the post and for being on this forum. I always find your comments very informative and intelligent.

My question is - I know it’s important to protect yourself. What is the best way to find out how to do it? Is there a good course/book on the subject or should you just get your answeres from an RE Attorney.

Thanks JB and God Bless