Contracts for Payment 415-25-10-20

(Revised 10/1/15 ML #3453)

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When an applicant or recipient has sold property with a contract to receive a series of periodic payments, rather than one payment, the arrangement is usually called a "contract for deed". The essential feature of the contract for deed is the right to receive future payments, usually coupled with a right to get the property back if the payments are not made. Contractual rights to receive money payments also arise out of other types of transactions. The valuable contract document may be called a note, accounts receivable, mortgage, or by some other name.

NOTE: Some contractual rights may be written so the lender has the right to demand payment at any time. If so, the note is considered a demand note and can be called in at any time. If a note is written so the lender does not have the right to demand payment but the note is in default, it also becomes a demand note. Contractual rights may or may not have collateral or security to guarantee payment.

The payments will include both interest and a portion of the sale price of the property that was sold (principle) and must be calculated separately.

The interest portion of payments received for any contractual right to receive payments (such as Contracts for Deed) must be included in the household’s gross annual income. If there are any costs to the deed holder, they may be subtracted from the interest earnings.

The principle portion of payments received for any contractual right to receive payments (such as Contracts for Deed) must be counted as an asset, unless the funds are in the form of an uncounted asset.

The face value of the contract that is producing income commensurate with prevailing community rates is NOT counted because it is producing income much like the asset that was sold.