You asked whether an oral assignment by Laura R~ to her sister, Sonja C~, created
an encumbrance (or lien) against her share (50%) of a contract with Wendy K~, and
whether such an encumbrance against the contract would also encumber the monthly payments.
You also asked whether Laura should be charged with interest from the monthly payments
since she assigned the monthly payments as well as the balloon payment. In other words,
you are asking to what extent Laura's proceeds from the contract with Wendy, given
her assignment to Sonja, are a countable resource for SSI purposes. We conclude that
the oral contract with Sonja is valid and encumbers Laura's share of the monthly payments
and a portion of her share of the balloon payment contemplated by the Note. However,
Laura is still charged with countable resources for SSI purposes, including her share
of the Note prior to the execution of the oral contract, her unassigned share of the
balloon payment, and the assets she receives from Sonja in consideration of the assignment.
On September 11, 2002, Laura R~ sold a home she co-owned (with three other parties
according to the HUD Settlement Statement) to Wendy K~ for $27,611.95. Laura and Rosa
A~ (one of the co-owners) took out a second mortgage (which you refer to as the "contract")
in the property to assist Wendy with the purchase, as Wendy did not have sufficient
financing to satisfy the purchase price. The second mortgage is set forth in a written
contract which you included, labeled "Note." The Note specifies that Laura and Rosa
are the lenders and Wendy and another individual, Paul, are the borrowers. The Note
specifies that $15,000.00 was loaned to Wendy and Paul at an interest rate of 6%,
and that Wendy and Paul in turn were obligated to pay monthly payments of $89.93 beginning
November 1, 2002, and continuing through November 1, 2004, with a balloon payment
also due on November 1, 2004 in the amount of $14,693.34. You indicated Laura's share
of the Note was $7,500.00, in other words, she advanced $7,500.00 of the $15,000.00
to Wendy and Paul. The Note specified that payments were to be made at "Sonia C~ .
. . [in] Texas . . . for Laura R~ and US Bank for Rosa A~." The Note does not specify
how the payments amounts would be divided, but presumably Laura and Rosa would each
be entitled to receive one-half of each monthly payment as well as one-half of the
Laura stated that in November 2002, she orally assigned her share of the contract
to Sonja. She indicated that they put their agreement in writing in August 2003, and
provided a copy of that Agreement. That Agreement indicated that they made an oral
contract in November 2002 regarding the proceeds from the September 11, 2002 Note
between Laura/Rosa and Wendy. The Agreement stated that it was "intended to memorialize
and document an oral contract between Sonja C~ and Laura R~." The Agreement stated
that "[b]ased upon the November 2002 oral contract made by the parties, [Laura] assigned:
(1) $5,000.00 of her interest in the November 2004 balloon payment, and (2) monthly
payments, owed to her under the Note to [Sonja]." The Agreement further stated that
"[i]n consideration of this assignment, [Sonja] agreed to provide assets (school clothes,
money for car repairs, etc.) as needed by Ms. R~." The Agreement noted that "[s]ince
the inception of this oral agreement, [Sonja] has provided assets in an amount totaling
approximately $4,500 to [Laura] in fulfillment of her obligation under the contract."
Additionally, Exhibit A, attached to the Agreement, describes the September 2002 Note.
The Exhibit indicates that, in February 2003, Laura received a payment of $500.00
toward the portion of the balloon payment owed her ($7,346.67), and that she only
expects to receive approximately $5,750.00 on November 1, 2004, the date on which
the balloon payment is due.
Assets are a resource for SSI purposes if the individual owns them and can convert
them to cash for her support and maintenance. 20 C.F.R. § 416.1201(a). If the individual
has the right, authority, or power to liquidate the property, it is a resource. 20
C.F.R. § 416.1201(a). Thus, if an individual is able to obtain funds or convert property
to cash to be used toward her support and maintenance, such funds or property are
to be included as resources for determining SSI eligibility.
The POMS directs that, in identifying resources, a bona fide promissory note is a
resource to the creditor. POMS SI 01140.300(C)(1). "If payments received by the seller consist of both principal and interest,
only the interest portion is income. The principal portion is the conversion of a
resource so it is not income." Id. However, if the loan is not bona fide, "payments towards the principal are unearned
income to the lender." POMS SI 00815.350(A)(2). "Interest received on money loaned is income whether the loan is bona fide
or not." POMS SI 00815.350(A)(3).
We note that the agreement between Laura/Rosa and Wendy/Paul for $15,000.00 is an
informal, written loan, made between parties who are not in the business of lending.
See POMS SI 01120.220(C). While you refer to this loan as a "second mortgage," the clause stating that
the note is secured by a mortgage has been cancelled out in the Note. Additionally,
you have not included any materials to show that there is actually a mortgage outstanding
or lien against the property in relation to this transaction. The Note does not reference
any collateral, and the lenders' rights in the event of default appear limited to
pursuing the money owed and costs and expenses. The materials you sent do not indicate
that Laura and Rosa borrowed funds from another lender, despite your statement that
Laura and Rosa "took out a second mortgage." Rather, it appears that Laura and Rosa
simply loaned their own funds directly to Wendy and Paul, or accepted this Note toward
the amount they were due on the sale of their home, to assist them with purchasing
the property. This type of note is thus considered a "promissory note," as opposed
to a "property agreement." POMS SI 01140.300(B). Under the terms of the Note, Laura and Rosa are the co-lenders and are entitled
to the funds from the monthly payments, both the principal and interest. Information
you provided indicates that Laura and Rosa each provided one-half of the loan proceeds,
thus, Laura's share of the Note would be a resource to her for SSI purposes.
As the creditor, Laura's portion of the principal loaned is considered conversion
of a resource, see POMS SI
01140.300(C)(1), and her portion of any interest payment is considered unearned income, see POMS SI 00815.350(A)(3). The POMS provides instruction on developing the resource value of the promissory
note. POMS SI 01120.220(B)(2)(a); SI 01140.300(C)(3), (D). Since there is no evidence to the contrary, we assume the Note is bona
fide and negotiable. POMS SI 01140.300(D)(1). If counting the original principal balance attributable to Laura ($7,500.00)
as a resource does not cause ineligibility, development ceases. POMS SI
01140.300(D)(1). The resource value of the note is assumed to be the outstanding principal
balance. POMS SI 01140.300(D)(2). Evidence of this balance should be obtained for the month in which the determination
is being made; the amortization schedule you included may be used. POMS SI 01140.300(D)(2). The payments Laura receives, if retained, are counted as her resource starting
in the month following the month of receipt. POMS SI 01120.220(B)(2)(a).
Next, we address the issue of whether the oral assignment by Laura to Sonja of her
right to payments under the promissory note creates an encumbrance against her share
of the Note. Laura indicated that she orally assigned her right to monthly payments
and the balloon payment under the Note to Sonja in November 2002, the month payments
were to start under the Note. _/1 In August 2003, Laura and Sonja put their agreement
in writing, and the terms set forth in the written agreement appear to be the terms
of the oral assignment, as the written agreement indicates that it "memorialize[d]
and document[ed]" the oral agreement. See Agreement.
You have asked whether this oral contract is a valid assignment of Laura's share of
the note and her right to payments, and whether the result would be different under
Minnesota or Texas law. The Statute of Frauds requires that any promise or agreement
which is not to be performed within one year must be in writing and signed by the
parties to be enforceable. See RESTATEMENT (SECOND) OF CONTRACTS § 110 (1981); TEX. BUS. & C. CODE ANN. § 26.01(a),
(b)(6) (Vernon 2002); MINN. STAT. § 513.01(1) (2002). _/2 It appears that the contract
between Laura and Sonja could be fully performed within one year and is thus valid.
Although the November 2004 balloon payment is referenced in the Agreement, the underlying
Note between Laura/Rosa and Wendy/Paul indicates the loan can be prepaid in full at
any time before it is due and that interest will only be charged on the unpaid principal
until the full amount of the principal has been paid. Indeed, Exhibit A to the Agreement
shows that some of the balloon payment was prepaid. Thus, it is possible that the
balloon payment and the monthly payments could all be paid within one year of the
contracting between Laura and Sonja. The contract also specifies that Sonja is obligated
to "provide assets (school clothes, money for car repairs, etc.) as needed by [Laura]."
The Agreement indicates that, as of August 2003, Sonja had already provided assets
worth approximately $4,500.00 to Laura in fulfillment of her obligation under the
contract, so presumably, Sonja's obligation is limited by the dollar value of the
assigned Note and payments and she could presumably fulfill her obligations within
one year of contracting with Laura. _/3 Therefore, the oral contract appears to be
enforceable under the Statute of Frauds. _/4
The written Agreement, executed ten months after the oral contract, clearly sets forth
the parties and the terms of the contract. Thus, the following should be counted as
resources to Laura:
(1) Between September 11, 2002, when the Note was executed, and the oral contract
in November 2002, Laura's share of the original balance of the Note ($7,500.00), is
countable as a converted resource (see above).
(2) The oral contract specifies that all of the monthly payments scheduled to begin
November 2002 were assigned to Sonja, so no interest income is countable to Laura
from the monthly payments. Furthermore, Sonja is assigned $5,000.00 of the $7,346.67
balloon payment which is Laura's interest in the November 2004 balloon payment. Thus,
$2,346.67 of the balloon payment is countable to Laura as a converted resource. The
POMS directs that "payments [against the loan principal] are counted as the lender's
resource starting in the month following the month of receipt." POMS SI 01120.220(B)(2)(a). Exhibit A to the Agreement indicates that Laura received direct payment
of $500.00 from Wendy in February 2003. Additional development is recommended to ascertain
when Laura receives/received the $1,846.67 additional payments to which she is still
entitled. Exhibit A indicates that $1,596.67 was already paid as of August 2003, so
presumably another $1,096.67 has been paid, but it is not clear if it was paid to
Laura or Sonja.
(3) Laura received approximately $4,500.00 in assets from Sonja between November 2002
and August 2003. If cash or ISM, these assets must be considered a resource to Laura,
and development of what she received and when is recommended. Further, the Agreement
contemplates that additional assets will be paid to Laura. Development is recommended
to ascertain what additional assets Laura receives from Sonja under this contract.
We conclude that the oral assignment from Laura to Sonja of both the monthly payments
and a portion of the balloon payment to which Laura was entitled under the Note appears
valid. However, the value of the loan prior to the assignment, the portion of the
balloon payment which was not assigned, and the assets in terms of cash or ISM that
Laura receives from Sonja are resources to Laura for SSI purposes.
_/1 As we noted earlier, the Note provided only that monthly payments were paid at
"Sonja C~ . . . [in] Texas . . . for Laura R~ and US Bank for Rosa A~." Thus, the
Note merely designated Sonja as an agent to receive Laura's payments on her behalf.
The Note did not assign those payments, and it clearly provided that payments, including
any November 2004 balloon payment, belonged to the "Note Holder." See Minn. Mutual Life Ins. Co. v. Anderson, 504 N.W.2d 284, 286 (Minn. Ct. App. 1993) (assignment requires that assignor not
retain any control or power of revocation); Twelve Oaks Tower I, Ltd. v. Premier Allergy, Inc.; 938 S.W.2d 102, 113 (Tex. App. 1996) (assignment transfers the assignors whole interest
in a right or property) (citation omitted).
_/2 Generally, a contract within the Statute of Frauds is enforceable if it is evidenced
by any writing that is signed by the parties and which identifies the subject matter
of the contract, indicates that a contract has been made, and states the terms of
the contract with reasonable certainty. RESTATEMENT (SECOND) OF CONTRACTS § 131. Such
a writing may be made or signed at any time before or after the formation of the contract.
Id. at § 136. Particular requirements may be set forth by the Statutes of Fraud. In Texas,
"there must be a written memorandum which is complete within itself in every material
detail, and which contains all of the essential elements of the agreement, so that
the contract can be ascertained from the writings without resorting to oral testimony."
Padilla v. LaFrance, 907 S.W.2d 454, 460 (Tex.1995) (quoting Cohen v. McCutchin, 565 S.W.2d 230, 232 (Tex.1978)). Similarly, in Minnesota, to satisfy the Statute
of Frauds, the writing must establish the contract in all its terms … [and] receive
no aid from parol evidence." Lewis v. Johnson, 143 N.W. 1127 1128 (Minn. 1913). Any such written memorandum "need not be contained
in one document." Padilla, 907 S.W. at 460; see also Halstead Minn. Tribune Co., 180 N.W. 556 (Minn. 1920). Nevertheless, as discussed above, the oral contract could
be performed within one year and, therefore, appears enforceable.
_/3 The assets that Laura received in exchange for her oral agreement must be considered
under our resource rules. If cash or in-kind support and maintenance (ISM), such assets
would be countable. We recommend development of when and what Laura received. Laura's
receipt of assets in exchange for the assignment of loan proceeds reinforces that
the assignment was not a transfer for less than fair market value. POMS SI 01150.001(C)(3). Further, Laura's receipt of assets must be developed to ensure that her assignment
of loan proceeds to Sonja was sufficient such that any shortfall did not lead to forgiveness
of a debt.
The terms "as needed" and "etc." with reference to the provision of assets by Sonja
to Laura suggest some vagueness regarding a time limit or some other limit on Sonja's
obligation to provide assets to Laura. In Texas, the parties' intention regarding
the length of performance at the time of contracting is determinative as to whether
the contract falls within the Statute of Frauds. See Gerstacker v. Blum Consulting Engineers, Inc., 884 S.W.2d 845, 850 (Tex. App. 1994), writ denied (Mar. 02, 1995). In Minnesota,
some proof of the duration of time for performance as a contractual term definitely
agreed upon is required. See Foster v. Butler, 291 N.W. 505, 507 (Minn. 1940).