(Revised 11/1/06 ML #3047)
(N.D.A.C. Sections 75-02-02.1-30 and 75-02-02.1-32(5))
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For various reasons, but usually because an applicant or recipient has sold property with a contract to receive a series of payments, rather than one payment, an applicant or recipient may own contractual rights to receive money payments. If the applicant or recipient has sold property, and received in return a promise of payments of money at a later date, usually to be made periodically, and an attendant promise to return the property if the payments are not made, 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.
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.
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A contractual right to receive money payments is considered an available asset, subject to the asset limits, unless the Medicaid unit is requesting coverage of nursing care services and the contract itself must be considered a disqualifying transfer (see subsection 4).
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Contract values.
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The value of a contract in which payments are current is equal to the total of all outstanding payments of principle and interest required to be made by the contract.
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The value of a contract in which payments are not current is an amount equal to the greater total of all outstanding payments of principle and interest required to be made by the contract, or the contract fair market value of the property subject to the contract. SFN 880, "Contractual Right to Receive Money Payments Valuation Request," (05-100-95) may be used to request a valuation from the Legal Advisory Unit when payments are not current. The request must indicate the amount of each payment made and time each such payment was made.
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In situations where the contractual right to receive money payments is not collectable and is not secured, the debt has no collectable value, and thus no countable asset value. An applicant or recipient can establish that a note has no collectable value if:
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The debtor is judgment proof. A debtor is judgment proof when money judgments have been secured and not satisfied. An applicant or recipient may show a debt has no value as long as a money judgment obtained by any creditor (including the applicant or recipient) has been on file in a county in which the debtor lives, or owns property, for at least 60 days and has not been satisfied; or
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The applicant or recipient verifies the debt is uncollectible due to a statute of limitations. A satisfactory verification includes an attorney’s letter identifying the statute and facts that make a debt uncollectible due to a statute of limitations.
Applicants and recipients should be encouraged not to forgive debts that have been determined to be uncollectible. Such debts could have a future value if the debtor ever accrues assets. At each annual redetermination, determine whether the judgments are still on file or whether the debtor has any change in assets.
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The purchase or establishment of a contract may be a disqualifying transfer if the owner, or the owner’s spouse, is requesting coverage for nursing care services and the contract was purchased or established on or after the look-back date (as defined in 05-80-10).
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A disqualifying transfer will be determined to have occurred if the value of the contract at the time it was purchased or established, plus any compensation received at that time, was less than the value of the property exchanged for the contract. The difference is the amount of the transfer.
Example: Mr. Green sells land to his children on a contract for deed. The land has a fair market value of $100,000. The contract required a $5,000 down payment and the value of the remaining payments adds up to $60,000. $100,000 less $60,000 (value of contract), and less $5,000 (down payment), leaves a difference of $35,000. Mr. Green made a $35,000 disqualifying transfer when he established the contract.
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The contract itself is also a disqualifying transfer unless:
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All payments due on the contract are expected to be made within the owners life expectancy as established using the tables at 05-100-75;
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The contract provides for equal payments and does not provide for a balloon or deferred payment; and
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The contract cannot be cancelled, or the payments diminished, upon the lender’s death.
The uncompensated value of a contract that is considered a disqualifying transfer is an amount equal to the remaining payments due from the contract.
Example: When Mr. Green sold his land to his children on a contract for deed, the contract included a clause that no further payments would be due on the contract when he passed away. Because of this clause, the contract is considered a disqualifying transfer. $55,000 is still due on the contract, so the amount of the transfer is $55,000.
As is shown in the above two examples, Mr. Green made two transfers. The first transfer was because he did not receive fair market value for the property, thus he made a $35,000 transfer. The second transfer was because of the cancellation clause, which results in a $55,000 transfer. These two transfers are combined for a total transfer of $90,000.
If the entire contract itself is considered a disqualifying transfer that results in a penalty period, the contract is not also considered an available asset.
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There is a presumption that the holder's interest in contractual rights to receive money payments is saleable without working an undue hardship. This presumption may be rebutted by evidence demonstrating that the contractual rights are not saleable without working an undue hardship.
When offering contractual rights for sale, they must first be offered to co-owners, joint owners, or occupiers. If no buyer is secured, the contract must be offered for sale by public advertisement. The following content is acceptable as a means of demonstrating a good faith effort to sell a contract for deed:
Example 1: Offered at 75% of value.
For Sale: Seller's interest in contract for deed. Secured by W ½ of Sec. 65-13-120. Remaining payments of $18,000 are due in annual installments on Nov. 1, 2006 through 2010. Will consider offers which exceed $13,500. Call 555-3333 or write Box 12, Tampa Gazette, Tampa, ND 58990.
Example 2: Offered at 100% of value.
For Sale: Seller's interest in contract for deed. Secured by W ½ of Sec. 65-13-120. Remaining payments of $18,000 are due in annual installments on Nov. 1, 2006 through 2010. Call 555-3333 or write Box 12, Tampa Gazette, Tampa, ND 58990.
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If an asset is sold in exchange for a contractual right to receive money payments, the principal payments received constitute a converted asset. (The interest portion of the payments is considered unearned income.)
