You want to sell your note for cash. When you sell it, you endorse your note over to the note buyer. An endorsement of a note is much like the endorsement of a check. A typical endorsement says: "For value received, pay to the order of (note buyer)" and must be signed and dated by the note seller.
The endorsement is usually written on the back of the note or on a separate piece of paper called an "allonge" that is permanently attached to the original note and becomes part of it.
This endorsement may be made "with recourse" or "without recourse."
A note sold "with recourse" makes you liable to pay the note buyer if the payor doesn't make the payments.
A note sold "without recourse" means that you do not have to pay if payments stop. If the endorsement makes no mention either way about recourse, the law says that the note is endorsed with recourse. This silence can be a trap for you if you are unwary.
If you intend to get out of the picture entirely, you must sign the endorsement with the two words, "without recourse." If you fail to use the words "without recourse" in the endorsement, you are guaranteeing it and you will be liable to pay if the payor stops paying.
Lorelei Stevens is president of Wall Street Brokers, Inc. in Seattle, Washington. She has been a licensed real estate broker (Washington State Real Estate Brokers License WA-LL-SB-*275LD) and a discounted note buyer since the 1970s. She has worked her entire adult life with Wall Street Brokers negotiating millions of dollars of paper and is a nationally recognized expert.
Lorelei has taught Legal Continuing Education seminars and has written numerous articles for legal, real estate and other professional publications on the subjects of seller-financing, managing, reinforcing and buying paper. She is the author of two books, one on seller-financing and another on note buying. She also writes a monthly column for Noteworthy Newsletter and is a frequent contributor to The Paper Source. Her web site is www.WallStreetBrokers.com.
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