You asked whether agreements between Andy (an SSI claimant) and Beverly (Andy’s sister)
are bona fide loans.  You also asked whether Andy transferred a resource when he gave money to Beverly,
purportedly to repay the loans.
Based on the information provided, the agreement between Andy and Beverly is not a
bona fide loan. Andy transferred a resource when he gave money to Beverly, and the
transfer was for less than fair market value.
You provided a statement from Beverly and a letter from Zinah of the Wilson and Hassler
Law Firm. You told us that Andy applied for SSI in June 2010. According to Beverly’s
statement, Andy received four distributions of cash in 2009 and 2010: (1) $29,630.85
for the sale of a house in January 2009; (2) $12,000 for settlement of a lawsuit in
February 2009; (3) $27,000 from the sale of a restaurant in February 2009; and (4)
$7,489.37 for settlement of a lawsuit in April 2010. The total is $76,120.24.
Beverly stated that Andy transferred the money to her and she applied it in the following
manner: (1) $35,000 to repay a loan, where Beverly was the lender; (2) $19,000 to
repay a loan, where Ms. S~ was the lender; (3) $6,000 distributed to Andy at $300
per month; and (4) $16,120.22 used by Beverly to support Andy. 
Beverly stated that she “loaned” money to Andy several times from 1998 to 2008, but
she did not provide any specific dates or amounts. She stated that over the ten-year
period, she loaned him a total of $35,000. She stated that, “[w]e agreed, [Andy] would
begin paying me back when his restaurant began making a profit.” There is no evidence
that the terms of the agreement were reduced to writing.
There is little information regarding the agreement between Andy and Ms. S~. The letter
from Ms. F~ discusses the sale of property that was previously a restaurant owned
by Andy, and states that Andy “may pay the note/lien on the property, which is owing
to his mother, in the approximate amount of $19,000.” We do not know the date of the
agreement, whether the agreement was oral or written, or any other terms of the agreement.
The reference to a “note,” however, suggests an agreement in writing.
There is no statement from Andy regarding his understanding of the terms of any of
the agreements or his obligation to repay.
Andy applied for SSI in June 2010. In the two years before his application, Andy received
a considerable amount of money. The money was a resource that would affect Andy’s
eligibility for SSI. See 20 C.F.R. § 416.1201(a); Program Operations Manual System (POMS) SI 01110.100B(1) (cash that an individual owns and is not legally restricted from using for his
support and maintenance is a resource). However, Andy transferred the money by giving
it to his sister. See POMS SI 01150.001(B)(3) (giving away cash results in transfer of resources). If Andy received fair
market value (FMV) for the transfer, the money would not affect his eligibility for
SSI. See POMS SI 01150.001, SI
01150.007. “FMV is the current market value (CMV) of a resource at the time the resource is
transferred.” POMS SI 01150.005(B)(1); see also 20 C.F.R. § 416.1246(b). In the case of a loan, the market value of the obligation
to repay is the principal amount of the loan. See POMS SI 01150.00(5)(C)(3)(d). Thus, when a borrower repays the principal of a loan
recognized by the agency, the borrower is receiving FMV.
“A loan is a transaction whereby one party advances money to, or on behalf of another
party, who promises to repay the lender in full, with or without interest. The loan
agreement may be written or oral, and must be enforceable under State law.” POMS SI
01120.220(A). Loans may be formal or informal. POMS SI 01120.220(D), (F). An informal loan is a loan between individuals who are not in the business
of lending money or providing credit. POMS SI 01120.220(D). A loan is bona fide if it is “legally valid under the applicable State’s law
and made in good faith.” POMS SI 01120.220(B)(3). An informal loan is bona fide if meets five requirements: (1) it is enforceable
under state law; (2) the loan agreement is in effect at the time the lender provides
the cash to the borrower; (3) the lender and the borrower acknowledge there is an
obligation to repay; (4) there is a plan for repayment, and the borrower’s express
intent to repay by pledging real or personal property or anticipated future income;
and (5) the repayment plan is feasible. POMS SI 01120.220(D). Based on the information provided, we conclude that the loan between Beverly
and Andy is not bona fide, because it is not enforceable under state law (requirement
1); and there is not a clear acknowledgment of the obligation to repay (requirement
As we have previously advised, an oral loan agreement is enforceable in Montana. See Memorandum from RCC Region VIII to ARCMOS Region VIII, Legal Opinion - Informal (Oral
or Written) Loans (Sep. 16, 2008). The Montana “statute of frauds” provides that certain
agreements must be written, including an agreement that by its terms is not to be
performed within a year from making the agreement. Mont. Code Ann. §§ 28-2-901 (2011).
However, where one party has fully executed its obligations under the agreement, there
is a “well recognized exception to the statute of frauds.” Davis v. Davis, 497 P.2d 315, 320 (Mont. 1972). Here, Beverly completed her portion of the agreement
by providing Andy with the money. Thus, the agreement could be enforced despite the
statute of frauds – if it were an otherwise enforceable loan (which it is not).
Under Montana law, “a loan of money is a contract by which a person delivers a sum
of money to another person and the other person agrees to return at a future time
a sum equivalent to that which the other person borrowed.” Mont. Code Ann. § 31-1-101
(2011). For an agreement to be a loan, the obligation to repay must be absolute, not
contingent on the occurrence of an uncertain event. See Firelight Meadows, LLC v. 3 Rivers Telephone Cooperative, Inc., 186 P.3d 869, 874 (Mont. 2008) (holding “[t]he hallmark of a ‘loan’ is an ‘absolute’
right to repayment of funds advanced,” and that if an obligation to repay is based
on a contingency or on a certain condition which may or may not happen or occur, the
transaction is not a loan); Nyquist v. Nyquist, 255 Mont. 149, 153, 841 P.2d 515, 518 (1992) (affirming the District Court’s conclusion
that the parties’ agreement ‘was not a loan agreement because it did not contain an
unconditional obligation to repay’).
Similarly, under POMS requirement 3, the obligation to repay cannot be contingent
on future improvement in financial circumstances.“[T]he lender’s statement that the
borrower must only repay the cash if he or she becomes financially able to do so does
not, on its own, create a legal obligation to repay.” POMS SI 01120.220D.3. In an
example, the POMS notes, “[t]he obligation to repay cannot be contingent on future
income that might be paid.” POMS SI 01120.220D.3.
In this case, Beverly stated: “We agreed, he would begin paying me back when his restaurant
began making a profit.” We have previously advised that parties’ use of the term “when”
in conjunction with a purported loan can have two meanings, leading to different results:
(1) a promise to repay that is contingent on the occurrence of an uncertain event,
which does not create an enforceable obligation to repay and should be considered
a gift; or (2) simply setting a time for repayment of an absolute obligation to repay.
See Memorandum from OGC Region VIII to RC Region VII, Validity of Oral Loan under Montana
State Law – Hardy (Sep. 18, 1980) (citing earlier opinions). Here, the future profitability
of the restaurant seems by its very nature to be an uncertain event. As such, the
agreement here must fall into the first category – unless the parties also agreed
that the loan would be repaid regardless of restaurant’s profitability. Beverly’s
statement does not indicate that the obligation to repay was absolute and unconditional.
As such, the agreement is not enforceable under Montana law, and does not meet the
POMS criteria that the obligation cannot be contingent on future improvement of financial
It is possible that the parties intended that Andy would repay the loan, regardless
of the profitability of the restaurant. For example, the parties might have agreed
that if the restaurant did not make a profit, he would repay the loan from other resources
or by selling the restaurant. If that were the case, we would conclude that Andy had
an absolute obligation to repay. Such an agreement is not indicated by the statement
Beverly provided, but it is possible that her description of the agreement is incomplete.
If additional development indicates that there were additional terms to the agreement,
further review would be appropriate. If you seek additional development, we recommend
the following questions be answered:
* On what dates did Beverly disburse money to Andy, and how much was disbursed on
* Is there evidence showing the money was received (e.g., cancelled checks, bank statements,
* When did the parties agree that Andy would pay Beverly back – at the time she disbursed
the money, or later in time?
* Did the parties discuss what would happen if the restaurant did not make any money?
If so, what was discussed?
We do not have enough information to determine whether the agreement between Andy
and Ms. S~ was a bona fide loan. In this case, all that has been alleged is that Beverly
used $19,000 to pay Ms. S~ and that Ms. S~ had a note and a lien on property. Given
the reference to a note and a lien, it is possible that this was a written loan. We
recommend that you attempt obtain a copy of the note and the lien documents if it
is necessary to determine whether this was a bona fide loan.
Based on the information provided, we conclude that the loans were not bona fide;
as such, Beverly did not receive fair market value when he gave money (and transferred
a resource) to Beverly.
Based on the information provided, the agreement to repay Beverly was based on an
uncertain future event, and is not enforceable under Montana law. As such, the agreement
is not a bona fide loan. Because Andy was not repaying a bona fide loan when he gave
Beverly money, he transferred a resource and did not receive fair market value. We
would be happy to review any additional evidence received through further development.
John Jay Lee
Regional Chief Counsel, Region VIII
Allan D. Berger
Assistant Regional Counsel