TN 7 (03-16)

PS 01815.011 Florida

A. PS 16-054 Status of a Promissory Note as Evidence of a Valid Mortgage on Non-Home Real Property for SSI

DATE: January 5, 2016

1. Syllabus

This Regional Chief Counsel (RCC) opinion discusses whether a promissory note from a Supplemental Security Income (SSI) recipient to her parents that purports to secure a mortgage on non-home real property shows a valid second mortgage that would reduce the equity value of the property for SSI resource purposes. It was determined that the promissory note does not establish a valid second mortgage, and is therefore insufficient to create a mortgage that reduces the equity value of Recipient’s non-home real property for SSI resource purposes.

2. Opinion


You have asked whether a promissory note from a Supplemental Security Income (SSI) recipient to her parents that purports to secure a mortgage on non-home real property shows a valid second mortgage that would reduce the equity value of the property for SSI resource purposes.


Short Answer

The promissory note does not establish a valid second mortgage on the non-home real property for SSI resource purposes.



The Social Security Administration (SSA) found that C~ (Recipient) was entitled to SSI beginning in March 2015. She is the sole owner of non-home real property located in H~, Florida. Recipient has a first mortgage on the property with a balance of $43,693.61 as of September 2015. The county property appraiser estimated the property’s value in 2015 was $50,368.00.


After Recipient reported her ownership of the property to SSA in September 2015, SSA sent notices advising her that she was no longer eligible for SSI. On November XX, 2015, Recipient executed a promissory note to her parents. The note purports to obligate Recipient to repay her parents $50,000.00 for personal loans they made commencing July XX, 2002. The promissory note states it “is secured by a second mortgage on real estate, of even date herewith,” but does not identify the property. Recipient provided no separate mortgage document with the promissory note.



SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Social Security Act (Act) §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2015). [1] “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to use for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “The general expectation is that individuals or couples whose resources exceed the applicable limit will use the excess to meet their needs before becoming eligible for SSI benefits.” Program Operations Manual System (POMS) SI 01110.001A.


Not every asset a person owns is a resource. See POMS SI 01110.001B.2. The Act specifically excludes from resources an SSI recipient’s home and its land. See Act § 1613(a)(1); 20 C.F.R. § 416.1212. However, for real property to qualify as a recipient’s excluded home, the recipient must have an ownership interest in the property and use it as his or her principal place of residence. See 20 C.F.R. § 416.1212(a); POMS SI 01130.100A. The information provided does not indicate the real property at issue meets the definition of an excluded home under the Act because it is not Recipient’s principal residence.


Real property that a recipient owns but that does not otherwise meet the definition of an excluded home under the Act is considered “non-home real property.” See POMS SI 01140.100A. Non-home real property is a potential resource for SSI purposes. See 20 C.F.R. § 416.1201(a); POMS SI 01140.100B. Non-home real property is assumed to be a nonliquid asset. See 20 C.F.R. § 416.1201(c)(1); POMS SI 01110.310B.1. When a recipient alleges that there is an encumbrance against non-home real property, and the encumbrance could affect SSI eligibility, the property’s equity value determines whether it is a resource for SSI purposes. See POMS SI 01140.100B, D.1; see also 20 C.F.R. § 416.1201(c)(1) (stating: “Nonliquid resources are evaluated according to their equity value except as otherwise provided”).


Equity value includes encumbrances, such as mortgages, and is measured against the current market value (CMV) of the property. See POMS SI 01140.100D.1.-2. A beneficiary alleging negative equity due to a mortgage must provide suitable evidence establishing the mortgage’s existence, amount due, and scheduled payments. See POMS SI 01140.100D.2; see generally 20 C.F.R. § 416.200 (stating a beneficiary “must give us any information we request and show us necessary documents or other evidence to prove that [she] meet[s] [SSI] requirements”).


As state law generally informs situations where varying property rights could affect resource determinations, see, e.g., POMS SI 01120.220B.1 (noting that loan agreements must be enforceable under state law), Florida law governs the answer to whether the promissory note evidences a valid mortgage encumbering Recipient’s non-home real property. Generally, all “instruments of writing conveying property or selling property . . . for the purpose or with the intention of securing the payment of money” are mortgages under Florida law. Fla. Stat. Ann. § 697.01(1) (West 2015). Stated another way, “Whenever property belonging to one person is held by another as security for an indebtedness of the other, the transaction is in effect a mortgage.” Kirkland v. Miller, 702 So. 2d 620, 621 (Fla. Dist. Ct. App. 1997) (internal quotation marks omitted). Thus, a mortgage can be evidenced by a promise to pay, as Recipient provided here. See, e.g., Deutsche Bank Nat. Trust Co. v. Clarke, 87 So. 3d 58, 62 (Fla. Dist. Ct. App. 2012) (stating that Florida law does not require “production of the mortgage in addition to the note” because the “mortgage itself is a mere incident to the note”).


In this case, the promissory note does not show a contractually sound second mortgage on the property. Mortgages, like other contracts, must be supported by consideration. See United States v. Morrison, 28 So. 3d 94, 99 (Fla. Dist. Ct. App. 2009). “Consideration” is a legal term requiring parties to agree to a new obligation or forego a right in order to make an enforceable contract. See, e.g., Cintas Corp. No. 2 v. Schwalier, 901 So. 2d 307, 309 (Fla. Dist. Ct. App. 2005) (stating that “[a] promise, no matter how slight, qualifies as consideration if the promisor agrees to do something that he or she is not already obligated to do.”); Uwanawich v. Gaudini, 334 So. 2d 116, 118 (Fla. Dist. Ct. App. 1976) (indicating that “where a party has a bona fide belief that he has a legal right, a forbearance to enforce that right may be consideration for a new agreement”). Here, Recipient’s parents apparently tracked personal loans they claim to have made to Recipient since 2002, indicating that they expected repayment for these prior amounts. The promissory note was based purportedly on these pre-existing debts owed to her parents. The mortgage therefore wants for consideration, as Recipient’s parents did not part with anything of value or forego an existing right at the time the promissory note was executed, and are actually in a better position than before the execution of the promissory note. See, e.g., Gabel v. Drewrys Ltd., U.S.A., Inc., 68 So. 2d 372, 375 (Fla. 1953) (discussing a lack of consideration for a mortgage where the mortgagee was in a better position after execution of the mortgage). Furthermore, it appears that Recipient and her parents executed the promissory note for the sole purpose of avoiding SSI resource limits. This arrangement is generally insufficient consideration for a mortgage. See, e.g., Chaykin v. Kant, 327 So. 2d 793, 794 (Fla. Dist. Ct. App. 1976) (finding a mortgage executed just to defeat an Internal Revenue Service tax lien was wanting for consideration). Recipient and her parents therefore did not create a valid second mortgage on the non-home real property.


The promissory note is also not a valid mortgage under Florida law because it does not describe the non-home real property in question. The promissory note instead purports to be “secured by a second mortgage on real estate, of even date” with the promissory note. The promissory note, on its own, is therefore ineffective to create a mortgage because the “land intended to be mortgaged cannot be identified because of a lack of description. . . .” Air Flow Heating & Air Conditioning, Inc. v. Baker, 326 So. 2d 449, 451 (Fla. Dist. Ct. App. 1976) (citing Fla. Bank & Trust Co. of West Palm Beach v. Ocean & Lake Realty Co., 160 So. 1 (Fla. 1935)). While mortgage documents may refer to other documents particularly identifying the land, those other cross-referenced documents must be specific in identifying the mortgaged property. See Gradolph v. Ricou, 139 So. 579, 580-81 (Fla. 1932). As Recipient did not provide the mortgage contract purportedly executed with the promissory note, the latter’s reference to the former is insufficient to determine if there is adequate identification of the property to be mortgaged. Accordingly, Recipient has failed to provide sufficient evidence of an effective mortgage against the non-home real property in question.



The promissory note is insufficient to create a mortgage that reduces the equity value of Recipient’s non-home real property for SSI resource purposes.


Mary Ann Sloan

Regional Chief Counsel, Region IV

By: Jeffrey S. Wilson

Assistant Regional Counsel


B. PS 05-078 Request for Legal Opinion Number Holder – E~, SSN ~

DATE: January 25, 2005


The beneficiary gave 50,000.00 to a relative. In exchange for the 50,000.00, a private annuity was created between the beneficiary and the relative. The annuity stated that the beneficiary would receive a specified amount of money over a specified period of time. This agreement was irrevocable and the beneficiary did not have the right to sell her interest in the private annuity. Florida law stated that the private annuity established between the beneficiary and her relative was valid under state law. The resource transfer was developed Per SI 01150.003 and SI 01150.005. It was found that the beneficiary did receive the fair market value for the resource transfer. Therefore, a period of ineligibility did not apply and the annuity was a not a countable resource.


You have requested our opinion as to whether a private annuity contract between two individuals is permitted under Florida law. We believe that such a contract is permitted.

E~, NH, and her sister entered into a private annuity agreement that NH funded with $50,000 that she received from a personal injury suit. The terms of the agreement provide her with monthly income of $5.00 for the first 123 months of the contract, with the remaining $60,682.70 to be paid in the final month. NH was approximately 78 years of age when she entered into the contract. Based upon the actuarial tables in POMS (SI 01150.005), a 78 year old female has a life expectancy of approximately 10.25 additional years. The annuity contract is based on a life expectancy of 10.24 years. Accordingly, it appears that NH is receiving a fair market value in return for the funds she used to establish the annuity contract.

Florida insurance regulations apply only to “insurers,” which is defined as a person engaged “in the business of entering into contracts of insurance or of annuity.” West's F.S.A. Sec. 624.03. Florida courts have held that individual self-insurers or out-of-state benefit societies are not “insurers” within the meaning of Florida law and therefore are not required to qualify under Florida insurance statutes. See Government Employees Insurance Company v. Wilder, 546 So.2d 12 (Fla. 1989) (self-insurer); Brotherhood's Relief and Compensation Fund v. Cagnina, 155 So.2d 820, 823 (Fla. 1963) (benefit society). A family member engaged in an isolated transaction would not be an “insurer” and accordingly would not be subject to Florida's insurance laws, which require a certificate of authority, among other requirements. F.S.A Sec. 624.11. According to an attorney in Florida's Department of Financial Services, which regulates the insurance industry in Florida, there is no specific prohibition against private annuity contracts in Florida.

This contract, however, like other insurance contracts, would be subject to laws generally pertaining to insurance contracts. Brotherhood's Relief and Compensation Fund, 155 So.2d at 823-24. This contract appears to meet these requirements as NH is getting a fair return on her investment and the obligor (sister) cannot change the contract to modify NH's benefits.

Because we believe the private annuity contract would be valid in Florida, the annuity would be an excluded resource for SSI purposes. See generally, 20 C.F.R. Sec. 416.420 (2004); SI 01110.115 (assets that are not a resource); SI 01110.100 (distinction between assets and resources).


Mary A. S~
Regional Chief Counsel

Laurie G. R~
Assistant Regional Counsel



All references to the C.F.R. are to the 2015 version.

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PS 01815.011 - Florida - 03/02/2016
Batch run: 03/14/2016