*** The Health Care Programs Manual (HCPM) has been replaced by the Minnesota Health Care Programs Eligibility Policy Manual (EPM) as of June 1, 2016. Please refer to the EPM for current health care program policy information. ***

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l  The seller of real property via a contract for deed or other property arrangement can often sell the contract to another person or persons.

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l  Consider a person’s equity The fair market value of real or personal property minus any encumbrances. interest in real property that is not a home and that is subject to a contract for deed or other property agreement as an available asset unless the property is determined to be an unavailable asset or the client is making reasonable efforts to sell the property. See Homestead Real Property.

Evaluate the availability of the promissory note as an asset and the interest received from it as income following the policies in Determining Asset Value of a Promissory Note and Evaluating Income Received from a Promissory Note.

A property agreement is a pledge or security of particular property for the payment of a debt or the performance of some other obligation within a specified period. Common types of property agreements include:

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n  An amortization schedule can be used to determine the outstanding principal balance and the interest income if the terms of the agreement are known.

George and Liz apply for health care for themselves and their three children. They are selling their cabin property, valued at $25,000, on a contract for deed. The principal balance owed to them on the contract is $15,000. They owe the bank $2,000 on the cabin.

This section provides policy provisions for contracts for deed and other property agreements. Use the analysis for contracts for deed to evaluate all property agreements.

Note:  Assume the value of the contract is the outstanding principal balance, less any encumbrances, unless proof of a lesser value is provided.

George and Liz receive a monthly payment of $500 from the buyer of the cabin they sold on a contract for deed.  The portion of the payment that is applied to the principal is $300. The outstanding principal of the contract is $13,000.

Alice applies for MA. She is the seller of property via a contract for deed. The principal balance of the contract for deed is $72,320. The county worker advises Alice that she must make reasonable efforts to sell the contract because the principal balance will put her over the asset limit. Alice verifies that she placed an ad in the newspaper offering the contract for sale. She also contacted two parties who are in the business of purchasing contracts for deed. The highest offer she received was at a 40% discount or $43,392.

l  Client has advertised the contract for deed in the official county newspaper, the newspaper with the largest circulation in the county, or the local shopper newspaper.

This section provides policies that apply to promissory notes, contracts for deed and other property agreements. The evaluation of promissory notes and property agreements depends upon whether the individual is a seller (creditor) or a buyer (debtor) under the agreement.

Eleanor enters into a reverse mortgage contract with her bank. Under this contract, the bank provides her with monthly payments that do not have to be repaid as long as she lives in the home. These payments are actually a loan against her equity interest in her home and must be repaid when she dies, sells the home, or moves.

For the creditor (the owner) of a promissory note, the promissory note is a liquid asset. Count promissory notes as an available asset unless evidence shows it is not available.

June resides in a long-term care facility (LTCF). She sold her home on a contract for deed. She owns the contract and the purchaser owns the property.

Consider a contract for deed or other property agreement unavailable due to a reasonable effort to sell if a client can verify all of the following criteria:

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Advise George that he must initiate and document reasonable efforts to sell the contract within 10 days. If he fails to do so, count the outstanding balance less any encumbrances toward his asset total.

l  Exclude a person’s equity interest in a home subject to a contract for deed as a homestead, and the unpaid portion of the contract for deed as an encumbrance. See Homestead Real Property (MA Method B).

Reverse mortgages allow owners to convert some of the equity in their homes to cash. Because the payments received from a reverse mortgage are actually a loan against the equity of the borrower’s home, such payments are treated as an encumbrance, not as a counted available asset.

The purchase of an interest in a promissory note occurs when a person (a third party) buys the right to receive payments under the promissory note from another person or entity.

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n  The portion of the payments received representing a return of principal is considered a conversion of assets from one form to another. Count the interest portion of a payment as income to the seller.

Assume that the current asset value of a promissory note or property agreement is its outstanding principal balance, unless the individual provides proof of:

Chris is the creditor (owner) of a promissory note and Bill is the debtor (buyer). Several months later Chris’s car breaks down and he needs money to fix it. Paula gives Chris the money by purchasing Chris’s right to receive payments from Bill under the promissory note. Paula is a purchaser of an interest in the promissory note and therefore, becomes the owner. Bill must now repay the note to Paula instead of Chris.

Payments received from a promissory note generally consist of both principal and interest. Only the interest portion of the payment is income. The principal portion of the payments is treated as the conversion of a resource, not income.

Calculate the value of the contract for George and Liz:  $15,000 outstanding principal - $2,000 bank mortgage = $13,000. Count the outstanding principal, $13,000, as an available asset for George and Liz unless they provide proof from a knowledgeable source (bank or financial institution) of a lesser fair market value.

Calculate the value of the contract:  $30,000 principal balance - $20,000 mortgage = $10,000. Count the outstanding principal of $10,000 toward Lee’s asset total unless he provides proof from a knowledgeable source (bank or financial institution) of a lesser fair market value.

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An amortization schedule can be used to determine the outstanding principal balance and the interest income if the terms of the agreement are known.

For available contracts for deed or property agreements, count the value of the contract or other property agreement as an available asset for the seller.

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The principal portion of the payment, $300, is considered a conversion of assets from one form to another and is not counted as income. The payment reduces the outstanding principal of the contract from $13,000 to $12,700. Consider the interest portion of the payment, $200, as income for George and Liz.

l  Client has contacted at least two businesses or individuals that routinely engage in the business of buying contracts for deed or other property agreements and offer the contract for sale.

Colleen sells real property valued at $200,000 by means of a 20-year contract for deed to Rondell. After 24 months, Dylan purchases Colleen’s interest in the contract for deed for $150,000. Dylan now owns the contract for deed, and Rondell must make his payments to Dylan. Dylan is enrolled in MA.

3. the value of the interest portion of the payment received from the promissory note (see Evaluating Income Received from a Promissory Note).

l  an estimate from a knowledgeable source (bank or commercial credit institution, etc.) demonstrating the market value of the promissory note is less than its outstanding principal balance.

Determine the value of the interest the client acquires under the contract for deed or other property agreement following the policy provided in Determining Availability of a Contract for Deed or Other Property Agreement - Seller. Such purchases must also be evaluated as transfers. See Purchases as Transfers to determine if purchasing the right to receive payments from a contract for deed or other property agreement is considered an uncompensated transfer.

The reverse mortgage contract itself is not a resource to Eleanor. Do not count the payments she receives from the reverse mortgage as income.

Evaluate the contract for deed as an asset when determining Dylan's eligibility. Also evaluate Dylan’s purchase of the right to receive payments from the contract for deed from Colleen as a transfer of assets to determine whether the purchase is considered an uncompensated transfer.

The purchaser of an interest in a promissory note takes the place of the seller and becomes the creditor (owner) of the promissory note.

A promissory note is a written, unconditional agreement whereby one party promises to pay a specified sum of money at a specified time (or on demand) to another party. It may be given in return of goods, money loaned, or services rendered. Review the policy information below for more information.

l  Client has accepted any offer to buy the property agreement that is at least two thirds of its value, only after establishing through a knowledgeable source that the property is not likely to sell for more. Knowledgeable sources include anyone in the business of making such estimates, such as, banks, financial institutions, or real estate brokers.

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The offer is less than two thirds of the principal balance; therefore, Alice may not accept the offer before establishing the property is not likely to sell for more. She must continue to make reasonable efforts to sell.

A person who is the buyer of property by means of a contract for deed or other property agreement has an equitable interest in the real property, usually has the right to occupy the property, and generally will not receive title to the property until payments are complete under the contract.

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A client who purchases the seller’s interest in a contract for deed or other property arrangement acquires the seller’s right to receive payments pursuant to the contract for deed.

A contract for deed is a conditional sales contract for the purchase of real property. It is similar to a mortgage; however:

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For the debtor of a promissory note a promissory note is an encumbrance A legal claim against real or personal property payable when the property is sold., not an asset.

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George was approved for MA after demonstrating a reasonable effort to sell his contract for deed. At the time of his annual renewal, he has not advertised the contract for nine months.

2. MA Method B only: The client does not provide proof of making reasonable efforts to sell the contract for deed or other property agreement within the applicable timeline for providing such information, or provide proof that there is no market value for a sale of the contract interest.

Lee sold his home via a contract for deed. The principal balance on the contract is $30,000. Lee still owes $20,000 on his mortgage on the home.

Tim’s home is real property subject to a contract for deed. Exclude the home from Tim’s asset total. The contract for deed is a liquid asset for Tim’s uncle, as the seller of the property.

Contracts for deed and other property agreements, such as deeds-of-trust, land contracts and mortgages held by the seller, are considered a liquid asset to the seller (creditor). The interest portion of the payments received from the contract for deed is treated as income. The principal portion of the payments received is treated as the conversion of an asset. The property itself is not an asset for the seller because the contract seller cannot legally convert it to cash while it is encumbered by the contract for deed.