Contractual Rights to Receive Money Payments 510-05-70-40

(Revised 1/1/18 ML #3508)

(N.D.A.C. Sections 75-02-02.1-30 and 75-02-02.1-32(5))

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.

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). When the penalty period is finished, and the applicant or recipient still owns the contractual right to receive the money payments, the contractual right is considered an available asset.

Contract values.

The value of a contract in which payments are current is equal to the total of all outstanding payments of principal required to be made by the contract, unless evidence is furnished that establishes a lower value.
The value of a contract in which payments are not current is an amount equal to the current fair market value of the property subject to the contract. If the contract is not secured by property, the value of the contract is the total of all outstanding payments of principal and past due interest required to be made by the contract.
In situations where the contractual right to receive money payments is not collectable and is not secured and the debtor does not have any assets such as money in a bank account or real property, is not working or has a very low paying job or the only other source(s) of income are exempt from seizure by judgment creditors, 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:

The debtor is judgment proof. A debtor is judgment proof when money judgments have been secured, an execution has been served against the debtor which has been returned as wholly unsatisfied, and the debtors affidavit and claims for exemptions exempt all of the debtors property or as determined by the department including but not limited to:

Has no legal rights to pursue payment of debts by garnishing wages or other sources of income that are not exempt from garnishment;

Cannot place a levy on bank accounts, and/or

Cannot place a lien against any real estate that the individual owns.

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 review, determine whether the judgments are still on file or whether the debtor has any change in assets.

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).

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.

Except for annuities (see 05-70-45), a contractual right to receive money payments that consists of a promissory note, loan, or mortgage is a disqualifying transfer unless:

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;
The contract provides for equal payments and does not provide for a balloon or deferred payment; and
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.

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, or in the case of an annuity, by establishing its countable value for Medicaid purposes (see 05-70-45-15 for valuation of annuities) (see 05-70-30(2) for more information regarding property that is 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.

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.)