Do I need a brokers license to sell fractions

[Stuart Grazier]

Hi BP,

I've been given an opportunity to buy multiple rounds of single family performing notes in Texas (1st & 2nd positions). Most are around the $100k-$125k range (9-10% yield). Unfortunately I am out of cash to buy more. I don't want to lose out on the opportunity, so I'm wondering if I would be able to get other investors to buy fractions with me so I can purchase with the smaller amount of cash I have.

Example: I have an opportunity to buy the packaged 1st and 2nd position lien for a total of $100k ($75k - 1st position, $25k - 2nd position). I find investors to buy fractions of the 1st position at $75k. I am then able to buy the 2nd position (at a discount from my seller) for $10k-$15k.

Do I need to have a broker's license to create this transaction?

[Don Konipol]

If you are selling fractional interests, you are selling securities.  To do so legally, you must comply with Federal securities registration, or qualify for an exemption from registration.  Major exemptions are intra state only offerings, or private offerings.  Both require that you do not generally solicit or advertise, with the exception of a REG D 506 (c) private offering, by which you can advertise, but must follow specific rules for filing a form D with the SEC and utilizing a PPM.  Cost to set this up with a securities law attorney is $15,000 - $25,000.  

If you violate securities laws you may operate without getting caught; however, should you be sued by your investor(s) for any reason, the fact that you operated in violation of securities laws results in the loss of any of your statutory defenses, meaning you will lose whether or not the claim is based on sufficient legal grounds.  Further, in all probability the plaintiffs will be able to argue successfully against granting you bankruptcy relief under the provision that liens resulting from fraud are not dischargable in bankruptcy.