What's My Role?

There are many ways to make money with real estate cash flow notes, but the easiest is based on a concept I learned when I first entered the note business and is still the heart of Winning in the Cash Flow Business. Find a note, refer the note to buyers, and make a quick cash profit! Now, as I mentioned, we have several ways to profit in the cash flow business, but the Find 'Em, List 'Em, and Make Money method is the best way to get started with no money of your own! Now, it is true that many folks jump into the note business with intentions of becoming an actual buyer, but it's the finder role that helps them achieve this goal. Let's talk a little more about the role you will fulfill — the finder role.

The primary attractions of Winning in the Cash Flow Business are the “ease of entry” into the private cash flow industry and the fact that none of the finding activities involve acting on the behalf of others. We are simply independent note finders, who make a profit for bringing basic information and knowledge to note buyers. It is this information and knowledge that allows us to make deals happen!

Keep in mind, those who enter into creative real estate niches, such as the note business, are not real estate agents, or licensed brokers of any kind. Again, there is no representation of other parties. A great example to prove this point is the fact that many people invest in the stock market, but less than 1% of them are stock brokers!

What's in a title?

The private cash flow industry has commonly used the term "note broker" to describe the role participants fulfill. Many people are used to the connotation of "broker" (as one who represents another) as it applies to real estate broker, mortgage broker, insurance broker, or perhaps even stock broker. But those occupations all require training classes, licensing, and employment agreements with established institutions in order to get started. That's not "ease-of-entry" and it defeats the primary purpose of why most of us are looking at the cash flow business in the first place!

Now, maybe it's just because many folks don't understand that, like many words, the word "broker" has several common definitions. It would seem so; given that so many instinctively dive into this business with the notion of "acting as an agent" for another, or "representing clients". But why would they even think about doing so, without having gone through the complicated procedures of learning all about the art and science (and in many cases, legal requirements) of "representing others"… i.e. "acting as an agent for others???" I don't know!

The term "broker" has created a false impression on many sides of the table with new note finders, state regulators, and even in the courtroom. So, if the word "broker" is confusing those in our business and especially YOU - don't call yourself a note "broker"! "Note finder" should suffice for most of us starting out in this business, but if you want to elaborate, how about being a “cash flow specialist”?

Remember, it is not so much what you title yourself, as it is what you do in your note transactions. "Representing clients,” or "acting as an agent" are definitely activities to avoid - simply for the reason that such activities limit our abilities to act in our own best interests, by way of the common law of agency that applies in all 50 states.

The law of agency doctrine puts another layer of legal obligations (i.e. "duty of care") on those who act on behalf of another. This is particularly so if we are acting on behalf of another, for a fee. Such "third-party" 'client' representation attaches with it, various requirements for disclosure of material facts; indirectly limits the amount and type of compensation we receive; imposes minimum standards of trust and competence in both our due diligence and negotiating skills - and frequently, creates liability for any advice we might offer to the "client". In many states, licensing issues even come into play, if you intend to represent clients, for a fee!

Seems like if folks wanted to go through all that trouble, they ought to consider becoming a real estate agent, or a mortgage broker, a stock broker… or why not shoot for the "king of the hill" of client representation - and become an attorney?! Given all the disadvantages, why would anyone even want to represent "clients" when jumping into the note business? Why complicate the opportunity, by "representing" somebody else?

Who do I represent?

I have never seen a course about the note business, or the private cash flow industry as a whole that even remotely discusses anything about representing buyers or sellers. Winning in the Cash Flow Business doesn't - go ahead and skim through Winning and have a look at the various forms and sample agreements. Do you see any kind of sample agreements that you would sign with a seller, for the purpose of "representing?" Did you run across any forms indicating they could be used for "representing" a buyer in a note deal??

What you will see is a “Commitment Letter” (commits the seller of the note to the sale); a “Non-Circumvent Agreement” (protects your interest when finding notes); and a “Payout Agreement” (to stipulate your fee out of a given note deal). None of these agreements, nor any other agreements presented in Winning and other course offerings of Dalbey Education, imply representation of any form. In other words- you won't see any "agency" agreements at all in these materials! We don't teach it, we don't preach it, and we don't recommend it! In our business, we always represent only our favorite people - ourselves!

Now, a great many state officials, attorneys, and other professionals often appear confused about what we do, but this won't matter, if we ourselves aren't confused about our role. Let's just do it the way those before us have done it, and simply act on our own behalf, as a “note finder," or a “cash flow specialist.” Follow what all the course materials suggest, and simply represent yourself.

This allows us to concentrate on only one public policy and this policy is something every American citizen has to deal with in every day business transactions… the "duty of fair dealing" - which is essentially the only duty that would apply to any individual out there, simply going about his OWN business. That's the easiest path to follow, the cleanest, and generally, by far the most profitable! That's what we call Winning in the Cash Flow Business!!!

I've always felt simplicity was the best route in the cash flow business. After all, simplicity is one the primary attractions to the business - whether we call ourselves “note finders,” or “cash flow specialists,” keep this very simple fact clear in your mind… there have been an awful lot of folks out here over the past 65 years who have made a lot of money working with "notes"… rather than working with "clients". That's what we do, and that’s what Winning in the Cash Flow Business is all about!

To win in the cash flow business, we only need to learn about the basics of what the cash flow business is, and how it works. That's it!

Defining our role

There are four important functions we perform to lay the foundation for our success at Winning in the Cash Flow Business…

1. Gathering meaningful information
2. Checking the information for accuracy
3. Packaging that information
4. Presenting the information to buyers

You could enjoy immense success in the cash flow business, if you remain highly focused on these four easy-to-do cornerstones. This is our raison d'être! Find the deals, put the information together, and put it into the hands of buyers in such a way that they can quickly determine what the deal is - and whether it is viable for them to purchase.

Controlling our deals

Now that we are clear on our role, I must mention the importance of having an agreement with the buyer (through a “Non-Circumvent Agreement” and “Payout Agreement”) and the seller (“Commitment Letter”). These agreements provide us with a basis to enforce our ability to actually get paid for our efforts on a particular deal. Once an offer has been accepted, you will want the seller to sign a “Commitment Letter” and the buyer to sign a “Non-Circumvent Agreement” and “Payout Agreement.” Having the correct agreements in place and signed is a great way to gain control while protecting the amount of profit we make on a given note contract.

Keep in mind, the agreements mentioned above help protect your interest in deals, but they are only part of the equation for control (if you are concerned about these documents then have your attorney review them). Successful note finders gain control of their deals from the start. That's right! Worthy finders begin controlling their deals long before the paperwork is signed by asking the right questions and determining how to spend their time on each particular deal. That's where the previously mentioned four cornerstones come in. It is always better to spend our time finding out as much as we can about a note and the seller's motivation for selling, rather than getting all wrapped up in details that don't matter.

Exploring the finder's role further

A finder is described as one who finds, interests, introduces, and brings parties together for a transaction - The principals themselves subsequently negotiate and consummate. In other words, a finder is a middleman who is not involved in the negotiating of any of the terms of the transaction between the buyer and the seller. Acting only as an introducing party allows us more latitude to act in our own best interests. Essentially, as a finder, we are passing along information that we gathered ourselves - this information, along with our access to buyers, is our stock in trade.

Many states have upheld a finder's exception to licensing requirements related to real estate, mortgages and loans, business opportunities, and even securities transactions - in states where such issues have gone to court. California in particular, has a well-settled history of supporting the finder exception to licensing laws in all of these professional areas!

California courts have consistently held that such an intermediary, or middleman, is protected by the finder's exception to the real estate licensing laws, an exception first established by California's Supreme Court in 1923, in Shaffer v. Beinhorn (190 Cal. 569, 573-574; 213 P. 960 [1923]). In that case, the Court held that a person who contracted to introduce a seller to a prospective buyer acted as a finder; and that one who simply finds and introduces two parties to a real estate transaction need not be licensed as a real estate broker; and in such cases, finders are entitled to be paid the finder fee agreed upon by the Parties to the Agreement.

Through numerous cases since that time, California courts have extended the finder exception to a broad variety of areas regulated by state licensing departments as well - and the finder's exception was comprehensively reaffirmed by California's Supreme Court again in Tyrone v. Kelley, 9 Cal.3d 1 (1973), and many subsequent Appellate Court cases.

California's courts have long observed that the purpose of the broker's licensing statute - the promotion of competency and trust - is NOT served by denying [finders] a fee on transactions where [they] merely introduced the principals to one another and [the principals] thereafter negotiated the transaction. An important nexus here is that finder's do not negotiate for any parties in a transaction, and that they have no ostensible fiduciary duty to either party.

Various courts in other states have applied similar standards in upholding the finder exception, and finder fee cases in New York (Northeast General Corp v. Wellington Advertising, Inc, 82 N.Y.2d 158, 624 N.E.2d 129, 604 N.Y.S.2d 1 [1993]) and Ohio (Legros v. Tarr , 44 Ohio St. 3d. 1 [1989]) have included additional interesting guidelines in their holdings.

A review of case law in various jurisdictions demonstrates that some additional important practical distinctions exist between finders, as opposed to "brokers" who represent other parties - in the circumstances under which licensing may be required, and how each may be compensated. Thinking these issues through carefully, you'll realize that these subtle differences between a "broker" who represents other parties and a finder, seems to offer a substantial advantage to the latter approach!

More importantly, the finder approach allows us the best avenue for avoiding the duties imposed by the law of agency doctrine, especially from the seller's side of the table. In most situations, this is where the law of agency generally would have the most potential ramifications.

The bottom line is, we don't want to be an agent for a buyer. Gathering information on a particular note; then completing a “Non-Circumvent Agreement” and “Payout Agreement” with the buyer for that note, provides presumptive argument that we are merely an introducing party. Thus, we are protected from ostensibly acting as an "agent" in another principal party's best interest - which offers more freedom toward simply acting in our own legitimate best interests.

This kind of relationship allows us a great deal more latitude in sharing what information we learn with either party in the transaction that may have a material influence on the outcome of the deal! This is an important principle to keep in mind, seeing as how part of our most effective function in successful note finding includes making a solid effort to determine the factors behind a seller's motivation level. We want and need to use this information, but it is clearly material to the outcome of the transaction - and if we are acting as the seller's agent (or ostensible agent), we are precluded from using such information to our own benefit. So, don't be an agent!

Disclaimer: Before you get involved in any real estate cash flow transaction we recommend that you conduct the necessary research regarding licensing in your state. Depending on the nature of the transaction, there may or may not be regulations or licensing requirements that apply for your state. For more information we suggest contacting an attorney with experience in professional licensing or securities issues. In addition, feel free to visit our website www.notenetwork.com/licensing for additional details.

Securing your finder’s fee

A fairly comprehensive “Payout Agreement” is illustrated in the Step-2 List 'Em manual. This is only one type of possible contractual format for securing your finder's fee. There are others that are simpler and less comprehensive, but may suffice to get the job done. Others can be more complex. As with all examples of forms, contracts, and agreements offered in publications such as this, the user is advised to have legal counsel advice on the viability and appropriateness of the forms for the individual user.

Summary of your role

The role you will fulfill in the note business is that of a finder. I have discovered that finding notes and referring these notes to buyers for a quick cash profit is one of the best ways to ease into this great industry. It is through this role that so many of my students have been successful — and nothing makes me happier than seeing someone use Winning in the Cash Flow Business to get one step closer to their goal of financial freedom. So get out there and Find 'Em, List 'Em, and Make Money!