PS 01820.055 Wisconsin

A. PS 04-199 SSI-Wisconsin-Review of a Land Contract for Norine A. S~, SSN: ~-Action

DATE: November 15, 1999

1. SYLLABUS

The beneficiary and her husband entered into a land contract in 8/98 in which they sold their property to their son and his wife. In 6/99, they amended the contract to say that the parents' interest in the land contract and any payments from the son were not transferable. The issue is whether the contract wording is acceptable under Wisconsin law and whether a legal bar to the transfer of the contract now exists as of 6/99.

In 8/98, the son agreed to pay the existing obligation on the property of $106,284.11, and to pay the balance of $88,715.89 to his father at the rate of $1,100 a month at a 6 percent interest rate. In 6/99, the parents amended the contract to read that their interest in the land contract and the payments they receive are not transferable, effective from the date of the original contract.

As a general rule, an interest in a contract can be sold and, therefore, is a resource. Also, an individual can agree to restrict the right to assign a contract. This restriction is strictly construed. The parents can assign their right to the money due them under the contract even though the contract purports to limit this right of transfer. Although the purchasers may still be able to insist on making payments to the parents directly instead of to the assignee, the parents would themselves be liable to pay any money received over to the assignee.

Since the parents can sell their right to receive payments under the contract, their interest in the contract is a countable resource for SSI purposes.

2. OPINION

Norine A. S~, an SSI claimant, and her husband, Arthur S~ entered into a land contract on August 13, 1998, in which they transferred their property to their son and his wife. On June 22, 1999, they amended the contract to provide that "Vendor agrees that Vendor's interest in this land contract and these payments shall not be transferrable [sic]." You asked whether the change in the contract wording was "acceptable under the laws of Wisconsin, and does a legal bar to the transfer of the contract now exist as of June 22, 1999." For the following reasons, we believe that the S~ could sell their right to receive payments under the contract. Therefore, the contract is a countable resource for purposes of determining Ms. S~'s SSI entitlement.

FACTS

On August 13, 1998, Mr. and Mrs. S~ sold farm property to their son and his wife (the purchasers) for $195,000. The purchasers agreed to pay $106,284.11 toward an existing obligation to Farm Credit Services. They agreed to pay to the S~'s the balance of $88,715.89 at the rate of 6%. This balance was payable to the S~ at the rate of $1,100 per month.

On June 22, 1999, the S~ amended their contract to provide as follows: "Vendor [i.e., the S~] agrees that Vendor's interest in this land contract and these payments shall not be transferrable [sic]." They also stated that the "corrected" contract was "effective from the date of that original contract."

DISCUSSION

Even with the added language concerning transferability, the S~' interest in the land contract is a resource. Resources for purposes of SSI are cash or other liquid assets or any real or personal property that an individual (or spouse, if any) owns and could convert to cash to be used for his or her support and maintenance.

(1) If the individual has the right, authority, or power to liquidate the property or his or her share of the property, it is considered a resource.

20 C.F.R. § 416.1201 (1999). According to the POMS SI 01120.220 and SI 01140.300, the S~' land contract is a resource, and the value of the resource is presumed to be the outstanding principal balance. Here, the contract is a resource presumably valued, as of August 1, 1998, at $88,715.89. See POMS SI 31120.220(I)(2), (J)(2) (value of property agreement as resource is presumed to be principal unless claimant presents convincing evidence of lesser current market value).

The value of a contract is a resource to the extent that it can be sold and the money received can be used to meet basic needs. 20 C.F.R. § 416.1201; POMS SI 01120.220(B)(2)(a). Nonliquid resources, such as the land contract, are valued according to their "equity value," i.e., the market value less any encumbrances. 20 C.F.R. § 416.1201(c)(2). Here, notwithstanding the language purporting to make the rights to the contract nontransferable, the right to receive payments under the contract can be sold.

As a general rule, an interest in a contract can be sold and, therefore, is a resource. See, e.g., Portuguese-American Bank of San Francisco v. Welles, 242 U.S. 7 (1916). Here, in June 1999, the S~ amended their land contract to provide that "Vendor agrees that Vendor's interest in this land contract and these payments shall not be transferrable [sic]." The question presented is whether this language restricts the S~' ability to convert their interest in the contract to receive money.

The general rule is that parties can agree to restrict the right to assign a contract. See 6 Am. Jur. 2d § 21. However, the restriction on the right to assign a contract is strictly construed and applies to the delegation to the assignee of the performance of the contract by the assignor. See id.§ 22. When, as here, the "performance" by the S~ is simply the collection of money, the restriction on their right to assign means no more than that the assignee (the person to whom the S~ could assign their rights) could not force the purchasers to pay the assignees directly. See id. § 25. This general rule is also supported by the Restatement (Second) of Contracts § 322, which explains that a contract term prohibiting assignment of rights under the contract does not render an assignment ineffective or prevent the assignee from acquiring rights against the assignor. Therefore, in view of these principles, the S~ can assign their right to the money due to them under the contract even though the contract purports to limit their right of transfer. Although the purchasers may still be able to insist on making payments to the S~ directly instead of to the assignee, the S~ would themselves be liable to pay any money received over to the assignee. Because the S~' contract rights can be sold, the contract is a resource.

In this matter the resource value is the equity value of the contract, and based on the language in the contract, we believe that as of August 1998, the S~' equity value appears to have been $88,715.89. This amount will decrease each year, as the purchasers make their payments, but clearly exceeds the SSI resource limit of $3,000. The part of the monthly payment constituting the 6% interest is income to the S~. POMS § SI 01120.220(B).

CONCLUSION

For the foregoing reasons, we believe that the land contract entered into by the S~ continues to be a countable resource to them and the interest payments are unearned income to them. If the contract were not a resource, the $1,100 monthly payment would be countable unearned income to them.

Thomas W. C~
Regional Chief Counsel

By: __________
John Martin
Assistant Regional Counsel


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PS 01820.055 - Wisconsin - 07/22/2004
Batch run: 01/27/2009
Rev:07/22/2004