Securing a Personal Loan Using Structured Settlement Rights

March 17th, 2011 by Fairlane Raymundo. No Comments »

When you secure a personal loan, a bond is required. The bond is what guarantees the company that is providing the loan that in case you miss the payments on agreed terms, they can get hold of your bond, which usually comes in the form of a property, which will serve as your payment for your loan. The structured settlement is considered a personal property. Therefore, in theory, you may be able to secure a personal loan using your structured settlement rights as a bond or collateral.

Complications may arise if the owner of the structured settlement has a trustee. The trustee’s primary legal obligation is to ensure that the interest of the beneficiary of the trust is upheld. Thus, it gives him the right to dispute any activity in the structured settlement that will not promote best interest of the beneficiary/owner of the structured settlement.

Whether or not the court will side with the trustee or allow the sale will depend on the facts of the case such as:

One example, although an old one, is the Douglas J. Lustig, as Trustee v. Peachtree Settlement Funding, LLC, and CAN Structured Settlement, Inc. Lustig is the trustee of Robert Chad Chorney who is the beneficiary of structured settlement. Chorney transferred part of his rights to future payments to Peachtree Finance as payment to his personal loan.

The court chose to honor the sale explaining that the case happened “prior to the filing of the debtor’s chapter 7 case neither the U.S. Congress nor the New York State Legislature had enacted legislation that prohibited a recipient of a structured settlement from granting a security interest in the general intangible structured settlement payments.”


Where to File Request to Transfer Structured Settlement Protection Act

January 24th, 2011 by Fairlane Raymundo. 1 Comment »

The court requires that if an owner of a structured settlement wishes to sell the rights to future payments, a request must be submitted to the courts for approval. The court requires several documents to ensure that the sale promotes the best interest of the owner and dependents and is fair and reasonable to all parties concerned. You can check our past posts on what the law requires here, here and here.

However, determining which court to file the request has several requirements as well. The request must be made to the court where the factoring company is licensed to operate. Certain complications will arise if the person who owns the structured settlement resides in another state.

There have been cases when the court requires that the payee and the factoring company get approval from both courts, the state where the factoring company is licensed to operate and the state where the payee resides. Such is the decision by Manhattan judge Judith J. Gische in the Matter of the Petition of Hiciano, No. 109641-10, 2010 WL 4732734, New York Supreme Court, New York County, N.Y. (N.Y. Sup. Ct. Oct. 20, 2010). You can check the entire decision here. The request by Settlement Funding of New York, LLC (‘SFNY’) is for an order approving the transfer of Hiciano’s structured settlement payment rights to SFNY.

The judge looked into the fact that the payee lives in Pennsylvania and that there is a need for all parties to file the same request from a court in Pennsylvania. However, before the petitioner can proceed to Pennsylvania, the New York Court must do the initial review and give a positive decision since the original petition was filed in New York.

When the judge looked into the background of the petitioner, the court denied the request because of inconsistencies on the claims of the payee and insufficient evidence that the sale will promote the best interest of the payee and dependents.

Thus, what was supposed to be good case of how two courts would have reviewed the same case never came into fruition. The request started and ended in New York. As per the law, the payee may file another request but would have to provide better documentation than what was previously presented.


Can I Borrow Against My Structured Settlement?

January 15th, 2011 by Fairlane Raymundo. 1 Comment »

Many are looking into loans when the need for a large amount of money arises and using the structured settlement as collateral seems a more attractive option since it allows them to use their structured settlement now but still own it once the loan is paid. Yes you can actually borrow against a structured settlement but financial institutions usually do not acknowledge structured settlements as collateral.

There are two basic kinds of loans. The first kind of loan, and also the most common, is collateralized and the other is not. Under the collateralized loan, financial institutions require that you provide them with you possession that has the same known value as the value of the amount you are borrowing. That collateral is the financial institutions’ guarantee that just in case you are unable to pay, they can take your possession. You can post anything of value as collateral. It could be a painting, your house, or a car. Since a structured settlement is a federally sanctioned annuity payment, it can be used as collateral

The non-collateralized loan is also known as the personal loan or signature loan. It is taken on the faith and good credit of your name. This is usually only obtained when you have established your good credit record.

However, there are two major points that discourages financial institutions from accepting structured settlement as collateral.

One is that the court require proceedings should the owner of the structured settlement decide to transfer the rights of the structured settlement to someone else. When you present your structured settlement as a collateral, you will then have to ask the court to approve it. That means the financial institutions will go through more proceedings and incur more costs. These costs will be deducted from you. Since the court requires that the final amount the structured settlement owner will receive be presented to them, they will most likely feel it is not fair for the owner to be paying so many fees.

The next consideration is the actual terms of your structured settlement. The manner and time how you receive your structured settlement fund has been set before the structured settlement take effect. if you are set to receive your money once a year and the lender wants to receive his monthly, that will be a problem.

Many people actually advise that you just sell your structured settlement instead of using it as a collateral. How you choose to do it really depends on the discount rates you will get.


How Are Structured Settlement Transfers Priced?

January 13th, 2011 by Fairlane Raymundo. No Comments »

We have mentioned in the past that one of the biggest disadvantage of your selling structured settlement is that you will definitely get less than the real value of your structured settlement. This is because the court acknowledges that the trade off of what you getting a lump sum of your money to finance an immediate need is someone else losing their money lump sum in the hopes of making more money in a staggered basis.

However, the question remains, how is settlement factoring transactions priced using discount rates? There are several variables that determine the overall discount rate a transaction has which includes time value of money, future value, standard legal expenses such as court filing fees, payment stream, misc. costs, and salaries.

Examples

Example 1 – Monthly payments of $1500 for 75 months

Let us say the discount rate of 4% the present value of this payment stream is $142,898. If you figure in legal document feel, salaries, and other administrative expenses, let us assume everything totals to $1,750. You will be left with 4.12%.

This is not bad at all.

Example 2- Lump sum of $60,000 on 1st of July 2010.

Let us take a discount rate of 16% and the present value of the payment stream is $50,704.
If you figure in legal document feel, salaries, and other administrative expenses, let us assume everything totals to $7,000, the discount rate will go up to 30.42%

The court closely looks into the buyer of the structured settlement. As we have previously mentioned, when a request is forwarded to the court for the transfer of rights of a structured settlement, the court takes a really close look at the reason or reasons for the sale. The court’s primary consideration is to make sure that the best interest of the owner of structured settlement is promoted.

However, even when the reasons are valid and all proper documentations are forwarded, you still can’t be assured that the court will approve your request. The court will still take a closer look at the company or individual that is buying your structured settlement. If the court realizes that the discount rate that is being agreed is unfair, then the court will still reject the request.


Why Is Your Structured Settlement Discount Rate So Low?

December 13th, 2010 by Fairlane Raymundo. 1 Comment »

You probably have heard the argument that selling structured settlement payments is actually better than taking out a loan because it doesn’t involve credit checks. It also does not give you additional burden of having to pay something regularly and with interest at that. Given that, selling structured settlements seems the safest financial risk you can make.

However, many are wondering why they get huge discount rates when they are selling their structured settlement compared to the discount rate set by the federal government. There are two reasons for this.

The federal rate is so low because they government is trying to make the market move. They know that there aren’t a lot of marketing activities nowadays meaning, not many are selling their structured settlement. The economic crash made people try to hold on to their money. It is healthier for the economy, in general, when assets go around the market. To try and encourage people to participate in the selling and buying, they pull down their rates really low.

That is actually connected to the second point. The society continuously needs money but when money is frozen into a market division that barely moves, then they are unable to supply the need for money. If they print more money, it will only create an imbalanced economy. The key is in making the economy busier by making people spend or invest their money on fast moving market.

Be mindful that the federal rate changes regularly. You can check the IRS or Internal Revenue Service monthly update on revenue ruling published rates. That includes the rates on annuities and life estates. However, companies who buy structured settlement are required to disclose the present value of future annuity payments applying the section 7520 of IRS. The 7250 indicates that “rate is equal to 120% of the applicable federal mid-term rate under section 1274(d), but rounded to the nearest two-tenths of a percent”.

If you are selling your structured settlement, you have to make sure that you are getting a reasonable rate of return that is above the industry standard or at least competitive. Make sure that you know how rates are computed and it should involve different considerations such as market volatility and federal law.


Role of the Structured Settlement Broker

December 9th, 2010 by Fairlane Raymundo. No Comments »

As we all know by now, structured settlement is a set up payment designed to release to you your money in a staggered basis instead of a lump sum. The money is kept safe, tax free and remains unaffected by economic factors such as inflation. Depending on how you decide to invest your money, you may earn interest or freeze it safe. The amount of regular payments you will receive is determined by the court and other independent advises to take into consideration your, if appropriate, medical needs, daily living needs and others.

The payer usually courses the payment through his or her insurance company. The insurance company will then buy one or more annuities from a dependable life insurance company. This insurance company will then make the payment to you.

The structured settlement broker is the one who directly deals with the recipient of the money. This includes what you are guaranteed to receive, for how long, how much you should ask for and other details. The broker will also have to explain the advantages of receiving the structured settlement over getting the money in lump sum. The explanation should contain how fluctuating interest rates can affect the value of money.

The structured settlement broker is expected to offer the most competitive annuity price since he or she is the one that has the most experience and strongest contacts with life insurance companies. A good broker must be able to tailor the package to meet your different needs. This includes attorney fees, medical expenses, money for future needs of dependents, mortgage payments and even a plan for retirement.

It is not true that a structured settlement leaves the recipient unable to adjust to certain expenses. A good broker should be able to use his creativity using information that is provided to him to design a plan that will put almost every probable situation you might go through and the expenses you will incur.

One way to spot a good broker is if and when he or she asks for information that may affect not just your present needs but future ones.


Structured Settlement Protection Act Explained

December 8th, 2010 by Fairlane Raymundo. No Comments »

We printed a copy of the Structured Settlement Protection Act. This is enforced in all states to standardize the selling of structured settlement annuity payments.

To help us better understand the provisions, below are some important points worth looking at.

1. The person selling the structured settlement must provide a documentation, with font size of at least 14, to the person buying a complete list of the most important points of the agreements. You have to make sure this is turned over at least three working days to the buyer. This includes the following:

2. The court also requires that the seller of the structured settlement gets independent professional advice from an attorney, certified public accountant, actuary or other licensed professional adviser. A documentation of this advice must also be turned over to the court.  regarding the transfer and has either received such advice or knowingly waived such advice in writing; and

3. At least 20 days before the scheduled hearing on any application for approval of a transfer of structured settlement, the buyer must file with the court a notice of the proposed transfer which should include the following:

Remember that this article is just a guide and you should still consult a lawyer if you are thinking of selling your structured settlement.


State Structured Settlement Protection Act

December 8th, 2010 by Fairlane Raymundo. No Comments »

SECTION 1. TITLE. This Act shall be known and referred to as the “Structured Settlement Protection Act.”

SECTION 2. DEFINITIONS. For purposes of this Act–

(a) “annuity issuer” means an insurer that has issued a contract to fund periodic payments under a structured settlement;

(b) “dependents” include a payee’s spouse and minor children and all other persons for whom the payee is legally obligated to provide support, including alimony;

(c) “discounted present value” means the present value of future payments determined by discounting such payments to the present using the most recently published Applicable Federal Rate for determining the present value of an annuity, as issued by the United States Internal Revenue Service;

(d) “gross advance amount” means the sum payable to the payee or for the payee’s account as consideration for a transfer of structured settlement payment rights before any reductions for transfer expenses or other deductions to be made from such consideration;

(e) “independent professional advice” means advice of an attorney, certified public accountant, actuary or other licensed professional adviser;

(f) “interested parties” means, with respect to any structured settlement, the payee, any beneficiary irrevocably designated under the annuity contract to receive payments following the payee’s death, the annuity issuer, the structured settlement obligor, and any other party that has continuing rights or obligations under such structured settlement;

(g) “net advance amount” means the gross advance amount less the aggregate amount of the actual and estimated transfer expenses required to be disclosed under Section 3(e) of this Act;

(h) “payee” means an individual who is receiving tax free payments under a structured settlement and proposes to make a transfer of payment rights thereunder;

(i) “periodic payments” includes both recurring payments and scheduled future lump sum payments;

(j) “qualified assignment agreement” means an agreement providing for a qualified assignment within the meaning of section 130 of the United States Internal Revenue Code, United States Code Title 26, as amended from time to time;

(k) “responsible administrative authority” means, with respect to a structured settlement, any government authority vested by law with exclusive jurisdiction over the settled claim resolved by such structured settlement;

(l) “settled claim” means the original tort claim or workers’ compensation claim resolved by a structured settlement;

(m) “structured settlement” means an arrangement for periodic payment of damages for personal injuries or sickness established by settlement or judgment in resolution of a tort claim or for periodic payments in settlement of a workers’ compensation claim;

(n) “structured settlement agreement” means the agreement, judgment, stipulation, or release embodying the terms of a structured settlement;

(o) “structured settlement obligor” means, with respect to any structured settlement, the party that has the continuing obligation to make periodic payments to the payee under a structured settlement agreement or a qualified assignment agreement;

(p) “structured settlement payment rights” means rights to receive periodic payments under a structured settlement, whether from the structured settlement obligor or the annuity issuer, where –

(i) the payee is domiciled in, or the domicile or principal place of business of the structured settlement obligor or the annuity

issuer is located in, this State; or

(ii) the structured settlement agreement was approved by a court or responsible administrative authority in this State; or

(iii) the structured settlement agreement is expressly governed by the laws of this State;

(q) “terms of the structured settlement” include, with respect to any structured settlement, the terms of the structured settlement agreement, the annuity contract, any qualified assignment agreement and any order or other approval of any court or responsible administrative authority or other government authority that authorized or approved such structured settlement;

(r) “transfer” means any sale, assignment, pledge, hypothecation or other alienation or encumbrance of structured settlement payment rights made by a payee for consideration; provided that the term “transfer” does not include the creation or perfection of a security interest in structured settlement payment rights under a blanket security agreement entered into with an insured depository institution, in the absence of any action to redirect the structured settlement payments to such insured depository institution, or an agent or successor in interest thereof, or otherwise to enforce such blanket security interest against the structured settlement payment rights;

(s) “transfer agreement” means the agreement providing for a transfer of structured settlement payment rights.

(t) “transfer expenses” means all expenses of a transfer that are required under the transfer agreement to be paid by the payee or deducted from the gross advance amount, including, without limitation, court filing fees, attorneys fees, escrow fees, lien recordation fees, judgment and lien search fees, finders’ fees, commissions, and other payments to a broker or other intermediary; “transfer expenses” do not include preexisting obligations of the payee payable for the payee’s account from the proceeds of a transfer;

(u) “transferee” means a party acquiring or proposing to acquire structured settlement payment rights through a transfer;

SECTION 3. REQUIRED DISCLOSURES TO PAYEE. Not less than three (3) days prior to the date on which a payee signs a transfer agreement, the transferee shall provide to the payee a separate disclosure statement, in bold type no smaller than 14 points, setting forth —

(a) the amounts and due dates of the structured settlement payments to be transferred;

(b) the aggregate amount of such payments;

(c) the discounted present value of the payments to be transferred, which shall be identified as the “calculation of current value of the transferred structured settlement payments under federal standards for valuing annuities”, and the amount of the Applicable Federal Rate used in calculating such discounted present value;

(d) the gross advance amount;

(e) an itemized listing of all applicable transfer expenses, other than attorneys’ fees and related disbursements payable in connection with the transferee’s application for approval of the transfer, and the transferee’s best estimate of the amount of any such fees and disbursements;

(f) the net advance amount;

(g) the amount of any penalties or liquidated damages payable by the payee in the event of any breach of the transfer agreement by the payee; and

(h) a statement that the payee has the right to cancel the transfer agreement, without penalty or further obligation, not later than the third business day after the date the agreement is signed by the payee.

SECTION 4. APPROVAL OF TRANSFERS OF STRUCTURED SETTLEMENT PAYMENT RIGHTS.

(a) No direct or indirect transfer of structured settlement payment rights shall be effective and no structured settlement obligor or annuity issuer shall be required to make any payment directly or indirectly to any transferee of structured settlement payment rights unless the transfer has been approved in advance in a final court order or order of a responsible administrative authority based on express findings by such court or responsible administrative authority that —

(i) the transfer is in the best interest of the payee, taking into account the welfare and support of the payee’s dependents;

(ii) the payee has been advised in writing by the transferee to seek independent professional advice regarding the transfer and has either received such advice or knowingly waived such advice in writing; and

(iii) the transfer does not contravene any applicable statute or the order of any court or other government authority;

SECTION 5. EFFECTS OF TRANSFER OF STRUCTURED SETTLEMENT PAYMENT RIGHTS. Following a transfer of structured settlement payment rights under this Act:

(a) The structured settlement obligor and the annuity issuer shall, as to all parties except the transferee, be discharged and released from any and all liability for the transferred payments;

(b) The transferee shall be liable to the structured settlement obligor and the annuity issuer:

(i) if the transfer contravenes the terms of the structured settlement, for any taxes incurred by such parties as a consequence of the transfer; and

(ii) for any other liabilities or costs, including reasonable costs and attorneys’ fees, arising from compliance by such parties with the order of the court or responsible administrative authority or arising as a consequence of the transferee’s failure to comply with this Act;

(c) Neither the annuity issuer nor the structured settlement obligor may be required to divide any periodic payment between the payee and any transferee or assignee or between two (or more) transferees or assignees; and

(d) Any further transfer of structured settlement payment rights by the payee may be made only after compliance with all of the requirements of this Act.

SECTION 6. PROCEDURE FOR APPROVAL OF TRANSFERS.

(a) An application under this Act for approval of a transfer of structured settlement payment rights shall be made by the transferee and may be brought in the [county] in which the payee resides, in the [county] in which the structured settlement obligor or the annuity issuer maintains its principal place of business, or in any court or before any responsible administrative authority which approved the structured settlement agreement.

(b) Not less than twenty (20) days prior to the scheduled hearing on any application for approval of a transfer of structured settlement payment rights under Section 4 of this Act, the transferee shall file with the court or responsible administrative authority and serve on all interested parties a notice of the proposed transfer and the application for its authorization, including with such notice:

(i) a copy of the transferee’s application;

(ii) a copy of the transfer agreement;

(iii) a copy of the disclosure statement required under Section 3 of this Act;

(iv) a listing of each of the payee’s dependents, together with each dependent’s age;

(v) notification that any interested party is entitled to support, oppose or otherwise respond to the transferee’s application, either in person or by counsel, by submitting written comments to the court or responsible administrative authority or by participating in the hearing; and

(vi) notification of the time and place of the hearing and notification of the manner in which and the time by which written responses to the application must be filed (which shall be not less than [fifteen (15)] days after service of the transferee’s notice) in order to be considered by the court or responsible administrative authority.

SECTION 7. GENERAL PROVISIONS; CONSTRUCTION.

(a) The provisions of this Act may not be waived by any payee.

(b) Any transfer agreement entered into on or after the effective date of this Act by a payee who resides in this state shall provide that disputes under such transfer agreement, including any claim that the payee has breached the agreement, shall be determined in and under the laws of this State. No such transfer agreement shall authorize the transferee or any other party to confess judgment or consent to entry of judgment against the payee.

(c) No transfer of structured settlement payment rights shall extend to any payments that are life‑contingent unless, prior to the date on which the payee signs the transfer agreement, the transferee has established and has agreed to maintain procedures reasonably satisfactory to the annuity issuer and the structured settlement obligor for (i) periodically confirming the payee’s survival, and (ii) giving the annuity issuer and the structured settlement obligor prompt written notice in the event of the payee’s death.

(d) No payee who proposes to make a transfer of structured settlement payment rights shall incur any penalty, forfeit any application fee or other payment, or otherwise incur any liability to the proposed transferee or any assignee based on any failure of such transfer to satisfy the conditions of this Act.

(e) Nothing contained in this Act shall be construed to authorize any transfer of structured settlement payment rights in contravention of any law or to imply that any transfer under a transfer agreement entered into prior to the effective date of this Act is valid or invalid.

(f) Compliance with the requirements set forth in Section 3 of this Act and fulfillment of the conditions set forth in Section 4 of this Act shall be solely the responsibility of the transferee in any transfer of structured settlement payment rights, and neither the structured settlement obligor nor the annuity issuer shall bear any responsibility for, or any liability arising from, non-compliance with such requirements or failure to fulfill such conditions.

EFFECTIVE DATE. This Act shall apply to any transfer of structured settlement payment rights under a transfer agreement entered into on or after the [thirtieth (30th)] day after the date of enactment of this Act; provided, however, that nothing contained herein shall imply that any transfer under a transfer agreement reached prior to such date is either effective or ineffective.


How The Law Protects Sellers of Structured Settlement Payments

November 8th, 2010 by Fairlane Raymundo. 1 Comment »

In 2002, Congress enacted IRC 5891 enabling recipients of settlement payments to sell their rights tax free but only after it is approved by the state court[1]. Although the prospect of getting rid of taxes seems attractive, many remain sceptical because a structured settlement payment maybe considered a personal property. What you do with your property should be under your discretion.

The Intention of The Law

The court is supposed to determine whether the sale and its terms are in the best interest of the person who wants to sell. This consideration is extended to the seller’s dependents. If keeping the settlement payment will secure the future of a minor, the court will most likely disapprove the sale.

Continue reading “How The Law Protects Sellers of Structured Settlement Payments” »