TN 7 (03-16)

PS 01820.007 Colorado

A. PS 16-059 CO Quitclaim Deed with Mortgage – B~ (PL16-03) – REPLY

Date: January 7, 2016

1. Syllabus

The Regional Chief Counsel (RCC) opinion evaluates whether the recipient could transfer ownership of a home via quitclaim deed while still keeping the mortgage in her name, and whether the particular transfer here was for less than fair market value. The RCC concluded that the quitclaim deed validly transferred a future interest in the recipient’s home to her sons, and the transfer was for less than fair market value. However, because there is evidence showing the transfer was for a purpose other than obtaining SSI benefits, the field office could determine that the period of ineligibility does not apply.

2. Opinion

You asked whether B~ could transfer ownership of a home via quitclaim deed while still keeping the mortgage in her name. You also asked whether the particular transfer here was for less than fair market value.

Short Answers

In Colorado, a person may use a quitclaim deed to transfer their interest in property even if the property has a mortgage. B~ used this method to transfer a future ownership interest in her house to her sons but keep the mortgage in her name.

Additionally, B~ transferred her house for less than fair market value. However, we think there is sufficient evidence to rebut the presumption that the purpose of the transfer was to obtain SSI benefits under POMS SI 01150.125, since B~’s home was previously excluded as a resource.

Background

B~ lives in a house in Colorado. She owned the house until 2014, then used a quitclaim deed to transfer ownership to her sons in exchange for ten dollars. The deed gives B~ a life estate to live in the house for the rest of her days, and she continues to pay the taxes, utilities, and mortgage on the house. B~ and her sons said the house was transferred for inheritance purposes.

Discussion

B~’s Home Transfer Is Valid

Under Social Security Administration (SSA) policy, a valid transfer of resources occurs when one person transfers ownership to another based on a legally binding agreement.1 In Colorado, a person may use a quitclaim deed to transfer whatever interest they have in real property.2 Families will often use quitclaim deeds to transfer property interests for estate planning purposes (such as to avoid the costs of probate), as was done here.3 However, a quitclaim deed generally does not transfer any mortgages on the property.4

In B~’s case, the quitclaim deed transferred a portion of her ownership interest to her sons. Because B~ reserved a life estate in the property, she continues to have an ownership interest during her lifetime; her sons have a “remainder” interest in the property, meaning they can possess or enjoy the property only after their mother’s death. Consistent with the life estate, B~ continues to be responsible for the mortgage and utilities. This is a legal transfer of ownership (or more accurately, of future ownership) under Colorado law.5

The Transfer Was for Less than Fair Market Value

According to the quitclaim deed, B~ transferred her home to her sons in exchange for ten dollars. She also said in her statement that she did not receive any compensation for this transfer. A 2013 tax payment receipt shows the home is worth over $41,000. Although the value of the transferred remainder interest might be less than the tax value of $41,000, it is certainly more than ten dollars. Consequently, the transfer was for less than fair market value.6

The Transfer Appears to Be for a Purpose Other than to Obtain SSI and Would Not Affect SSI Eligibility

Under the Social Security Act and SSA’s policies, a person may become temporarily ineligible for benefits if she transfers a resource for less than fair market value. This is because SSA presumes such transfers were intended to help a person establish or maintain SSI eligibility. An individual may rebut this presumption by presenting convincing evidence that the resource was transferred for a purpose wholly unrelated to SSI eligibility—such as evidence that the transferred resource would have been an excluded resource under SSI rules.7

Here, statements from B~ and her sons show that the purpose of the transfer was related to estate planning rather than SSI eligibility—B~ wanted her sons to own the home if something happened to her. The quitclaim deed and other documents corroborate these statements, showing that B~ retained a life estate and continues to pay the mortgage and other bills. More importantly, B~ lives in the home as her principal place of residence, and was receiving SSI prior to the transfer. Thus, we assume that the home was an excluded resource at the time of transfer.8 There would be no logic in transferring a resource for the purpose of benefiting SSI eligibility when that resource was already being excluded.

Based on this evidence, we think the field office could find convincing evidence that the resource transfer was not related to SSI eligibility, in accordance with POMS SI 01150.125.

Conclusion

The quitclaim deed validly transferred a future interest in B~’s home to her sons, and the transfer was for less than fair market value. However, because there is evidence showing the transfer was for a purpose other than obtaining SSI benefits, the field office could determine that the period of ineligibility does not apply.

B. PS 16-003 Treatment of Promissory Note and Deed of Trust

DATE: October 6, 2015

1. Syllabus

This Regional Chief Counsel opinion discusses whether a promissory note and deed of trust prove the number holder (NH), did not transfer a resource, her house in Colorado, for less than fair market value. It was determined that the promissory note and deed of trust adequately demonstrate that the NH did not sell the La Junta house for less than fair market value. However, the NH continues to have property interests in the house and promissory note that might be countable resources and should be further evaluated.

2. Opinion

Question Presented

You asked whether a January 2015 promissory note and deed of trust prove A~, the number holder (NH), did not transfer a resource, her house in La Junta, Colorado, for less than fair market value.

Short Answer

Yes, the promissory note and deed of trust show that the NH received fair market value for transferring a partial interest in her house in La Junta, Colorado. However, the NH still has property interests that should be evaluated.

Background

According to the information you provided, at some point before August 2014, T~ gave title of Colorado (the “La Junta house”), to her sister, the NH. The NH began living in the La Junta house in August, and lived there rent and mortgage free until December 2014, when she moved in with J~, in Colorado (the “Ordway house”).

Because the NH owned the La Junta house, but was not living there, the agency notified her that she had excess resources. After she was notified she had excess resources, she sold a percentage interest in the La Junta house to J~’s father for $10,000. She apparently did not receive $10,000 cash, but instead told the agency that she received a $10,000 equity stake in the Ordway house in exchange for an ownership interest in the La Junta house.

While the NH provided a quitclaim deed showing she sold an interest in the La Junta house, she initially did not provide evidence that she received an interest in the Ordway house. As a result, the field office concluded she sold the La Junta house for less than fair market value. Later, the Colorado Cross-Disability Coalition (CCDC) provided a promissory note and deed of trust. The promissory note states that J~’s father borrowed and promised to repay the NH $10,000 and that the debt was secured by a deed of trust in the Ordway house.

Discussion

Under the Act, an individual’s eligibility for SSI is affected, and she may be temporarily ineligible, if she disposes of resources for less than fair market value. 42 U.S.C. § 1382b(c); see POMS SI 01150.110.

Here, the NH’s quitclaim deed demonstrates that she did not sell the entire house. Instead, she sold a percentage ownership of the house. The exact percentage is not specified in the quitclaim deed, but instead will be calculated at the time the La Junta home is sold, based on what percentage interest corresponds with $10,000. See Eastbrook Homes, Inc. v. Treasury Dep’t, 820 N.W.2d 242, 250 (Mich. Ct. App. 2012) (“A quitclaim deed is generally construed as conveying all the grantor’s interest in the described property unless some interest is expressly excepted or reserved.”), cited in 26A C.J.S. Deeds § 327. In other words, the NH transferred whatever percentage of the property that is worth $10,000.

In return, the quitclaim deed indicates that the NH would receive $10,000. Although the particulars of the consideration she received were not in writing at the time she conveyed an interest in the La Junta home, the promissory note and deed of trust were subsequently executed. The fact that these documents were executed after the quitclaim deed is not problematic. See Jarnagin v. Busby, Inc., 867 P.2d 63, 66 (Colo. Ct. App. 1993) (“[A] contract that contains essential terms may constitute a valid binding contract, even though the parties agree to negotiate on additional terms.”).

These documents show that, while the NH did not receive cash for her transfer of an interest in the La Junta home, she received a promise of $10,000 in the future. A promise of future performance is consideration “if, but only if, the promised performance would be consideration.” Restatement (Second) of Contracts § 75. Here, the promised performance (payment of the $10,000) is plainly consideration. Further, the promise is secured by an interest in the Ordway house. Because the NH received a secured and enforceable promise to pay the $10,000, we believe that the NH received fair market value for her interest in the La Junta home.

Although the NH did not transfer a resource for less than fair market value, it should be noted that she continues to have property interests that might be countable resources. First, she continues to own a percentage interest in the La Junta house. Whether or not her percentage interest is countable may depend on whether she can convert her percentage interest to cash, in light of the joint ownership. See POMS SI 01120.010(C)(2) (property not a resource if litigation would be required to accomplish sale of joint property). Second, she owns the promissory note, which appears countable. See POMS SI 01140.300(C)(1), (D)(3) (noting that a promissory note is a resource, but giving the claimant the right to submit evidence showing that there is a legal bar to sale of the agreement).

Conclusion

The promissory note and deed of trust provided by CCDC adequately demonstrate that the NH did not sell the La Junta house for less than fair market value. However, the NH continues to have property interests that might be countable resources and should be further evaluated.


Footnotes:

[1]

. POMS SI 01150.001(B)(1).

[2]

. Tuttle v. Burrows, 852 P.2d 1314, 1316 (Colo. App. 1992).

[3]

. Cathy Stricklin Krendl et al., Methods of Practice § 64:2, in 2 West’s Colo. Practice Series (6th ed., updated 2015).

[4]

. Bayou Land Co. v. Talley, 924 P.2d 136, 152 (Colo. 1996) (“If the buyer acquires the land subject to the encumbrance, the land continues to secure the obligation but the buyer is not personally liable for the debt. However, the grantor or seller remains personally liable.”).

[5]

. See POMS SI 01150.001(B)(1).

[6]

. See id. 01150.005.

[7]

. Id. 01150.125(B)-(C).