A note broker is a financial intermediary who connects people holding promissory notes with investors willing to buy those future payment streams at a discount. The broker doesn’t buy the note with their own money. They earn a commission by finding a qualified buyer and moving the transaction to closing. Most sellers meet a note broker after carrying a private mortgage or business note and deciding they’d rather have cash now than collect payments for years.
What a Note Broker Does
Think of a note broker as a matchmaker with a Rolodex of investors. If you hold a promissory note and want cash, you could try finding a buyer yourself, but the market for private debt is fragmented and opaque. Buyers are scattered, pricing is inconsistent, and the paperwork is specialized. A broker already has relationships with capital investors who acquire specific types of notes, and the broker knows what those investors will pay.
A good broker also handles most of the transactional friction. They gather your documentation, run a preliminary valuation, package the note for investor review, coordinate due diligence, and manage the closing. For sellers unfamiliar with the secondary debt market, that guidance is often worth the fee on its own.
Broker vs. Buyer: Why the Distinction Matters
A note buyer uses their own capital to purchase your note outright. A broker acts as your agent, marketing the note to their investor network and negotiating on your behalf. Because the broker never takes ownership, they carry no credit risk from the underlying borrower. Their incentive is straightforward: close the deal and collect a commission.
Some brokers also act as principals, buying notes with their own money and reselling them. That is a fundamentally different arrangement. A broker-agent wants the highest sale price for you. A broker-principal wants the lowest purchase price from you. Before you sign anything, ask which role the person across the table is playing. If they won’t answer clearly, find someone who will.
Types of Notes a Broker Handles
Real Estate Mortgage Notes
Privately held mortgage notes are the core of note brokerage. When a property seller finances part of the sale price, the buyer signs a promissory note secured by a deed of trust or mortgage. That note is a tradeable asset. Performing notes, where the borrower is current, attract the most investor interest and sell at the smallest discount. Non-performing notes trade at steeper discounts because the buyer faces collection costs, potential foreclosure, and longer timelines to recover their money.
Business and Commercial Notes
When a business changes hands through seller financing, the buyer typically signs a promissory note for the balance. These notes carry a different risk profile than real estate notes because there is often no hard collateral behind them. The note’s value depends heavily on the ongoing solvency of the business, so brokers marketing them will emphasize cash flow history and any personal guarantees.
Structured Settlement Payment Streams
People receiving structured settlement payments from legal judgments or insurance claims sometimes want to sell some or all of those future payments for a lump sum. Federal law imposes a 40% excise tax on the discount amount when someone acquires structured settlement payment rights, unless a state court first approves the transfer. The court order must find that the sale doesn’t violate any federal or state law and is in the best interest of the seller, considering the welfare of their dependents.1Office of the Law Revision Counsel. 26 USC 5891 – Structured Settlement Factoring Transactions The 40% tax is steep enough that essentially no transaction proceeds without court approval, so brokers in this niche coordinate the court petition alongside the sale itself.
Full Sale vs. Partial Sale
You don’t always have to part with the entire note. A partial sale involves selling a specified number of future payments while keeping ownership of the rest. You might sell the next 60 monthly payments of a 15-year note, take a lump sum now, and resume collecting once those 60 are used up.
Partial sales appeal to sellers who need immediate cash but don’t want to abandon a reliable income stream. They also tend to reduce the discount the seller absorbs, because the investor is buying a shorter and more predictable payment window. The tradeoff is that you retain exposure to the borrower’s long-term performance.
How the Transaction Works
The process starts when you contact a broker and share basic information about your note: the remaining balance, interest rate, payment history, collateral details, and borrower information. The broker uses this to run a preliminary valuation and decide whether the note is marketable. Consistent payment histories and solid collateral sell easily. Spotty payments, thin equity, or weak borrower credit mean deeper discounts.
Investor yield expectations drive pricing. For performing residential mortgage notes, investors commonly target yields in the range of 10% to 14%, meaning they will pay less than face value to hit that return. The size of the discount you absorb depends on collateral equity, borrower credit, the note’s interest rate, and how many payments remain. A note with 50% equity and a strong borrower sells for meaningfully more than one with slim equity and a shaky payment record.
Once the broker has a realistic price range, they present a summary package to investors in their network. An interested investor submits a preliminary offer. If you accept, the investor moves into due diligence, which is the most document-heavy phase. Expect requests for the original promissory note, the recorded deed of trust or mortgage, a complete payment ledger, proof of hazard insurance, and a title search confirming no liens have priority over yours. For commercial property notes, an estoppel letter confirming the borrower’s obligations may also be required.
Closing formally assigns ownership of the note and its security interest to the investor. The assignment is recorded in the county land records where the property sits, which puts future parties on notice that the note has changed hands. The investor wires the purchase price to the seller (minus the broker’s commission), and servicing transfers to the new owner or their loan servicer.
How Note Brokers Get Paid
The standard model is a commission set as a percentage of the note’s sale price. Rates vary with size and complexity, but commissions of 2% to 8% are common for straightforward residential note transactions. Smaller notes tend to draw higher percentage commissions because the broker’s fixed costs for due diligence and coordination don’t shrink with the deal.
Some brokers also charge upfront fees for services like valuation reports or preliminary title work. These fees cover the broker’s time whether or not the deal closes, so ask about them before you sign anything. Reputable brokers disclose all fees in writing at the outset.
A broker acting as principal earns income on the spread between what they pay you and what they resell the note for, not a commission. Again, this is a different job wearing the same title, and the economics run in the opposite direction.
A Note on Licensing
There is no single federal “note broker license.” The SEC has stated that most promissory notes qualify as securities and must be registered or qualify for an exemption. Notes with terms of nine months or shorter may be exempt from SEC registration; longer-term notes generally are not.2SEC.gov. Promissory Notes: Promises, Problems Some states require brokers facilitating mortgage note sales to hold a real estate license, a mortgage broker license, or both. Others have no specific requirement. The SEC recommends contacting your state securities regulator to verify that both the broker and the note are properly registered before you sign.
How to Vet a Note Broker
The industry is small and lightly regulated enough that bad actors can operate for years before anyone notices. A few steps reduce your risk considerably.
Don’t sign an exclusive brokerage agreement that locks you in for more than 90 days or requires significant upfront fees before the broker has done substantive work. Legitimate brokers earn their money at closing. Pressure to sign a binding contract or pay early is a warning sign.
Get competing quotes. Contact at least two or three brokers or direct note buyers and compare valuations. If one quote is dramatically higher than the others, be skeptical. An inflated initial estimate is a common tactic to secure your agreement, followed by a “revaluation” that drops the price once you’re committed.
Verify credentials. Check with your state securities regulator and your state’s real estate commission to confirm any required licenses. Look for disciplinary actions or complaints. A broker with several years in business and verifiable references is a safer bet than one who appeared last month.
And confirm, in writing, whether the broker is your agent or the buyer. That single answer tells you whose interests they are actually working for.