by John Darer CLU ChFC CSSC RSP CLTC
Strategic Capital has published a so-called Structured Settlement Roundtable featuring Cincinnati attorney Joe Dehner, Dallas attorneys Matt Bracy and Earl Nesbitt who are partners in Nesbitt Vassar & McCown LLP, California attorney Eugene Ahtirski, S2KM President Patrick Hindert and Stratcap's Terry Taylor Several months ago I was approached by a man conducting the survey for Stratcap, to give my opinions concerning selling structured settlement payments for Stratcap's roundtable and I declined because I simply do not want to endorse Strategic Capital exclusively. There are many fine secondary market choices for consumers who seek them out.
That being said, the effort to ask the questions is laudable however, I have chosen to be interactive and answer the questions from my own structured settlement blog platform, Structured Settlements 4Real®, as well as deliver commentary on certain of the expert remarks made in Strategic Capital's published structured settlement roundtable report.
Question: What are the pitfalls that people should be careful of when they sell structured settlement payments?
Patrick Hindert fails to get out of first gear by not answering the question in his first three bullet points. Hindert's answers. The question does not pertain to settlement planning. His points that DO address the question are all valid;
- "A fourth pitfall occurs when individuals sell structured settlement payment rights without first discussing alternatives with financial advisors.
- A fifth pitfall occurs when individuals sell structured settlement payment rights without soliciting and comparing multiple offers and inquiring about commutation options.
- A sixth pitfall occurs when individuals compare multiple offers without assistance from advisors who are knowledgeable about transfers and can help negotiate favorable terms including but not limited to price. These terms include the amount and allocation of expenses"
Matt Bracy delivers a concise answer for sellers of structured settlement payments
- "Sellers of structured settlement payments should carefully consider is whether they depend on the payments being assigned. No one should sell payments that they need in order to make ends meet, or if they are needed for medical treatment or care.
- When they sell payments, they should match the amount they sell with that need, but no more. Structured settlements provide excellent long-term benefits and should be left intact as much as possible.
- Very careful planning and consideration should be given to how they will use the money. Every structured settlement seller should develop a detailed plan for the proceeds. This will help when the court considers the sale, and will also help focus the seller on making the best use of his or her resources. When the plan is done, this essential question should be asked: “Will I be better off selling these payments and using the lump sum of money I get in this way than I would be otherwise?” If so, then the sale is a good idea and the process of thinking this through will be useful in court".
Bracy's parther Earl Nesbitt amplifies Bracy's statement by stating that structured settlement/annuity payments are a valuable financial asset of the payee. It is refreshing that Nesbitt does not get caught in the intellectual dishonesty that is frequently exhibited in the secondary market by correctly describing the process of "selling your structured settlement" as a transfer and assignment of the right to receive future structured settlement payments, as opposed to selling an annuity. After the payment rights are sold the structured settlement annuity is still owned by the same party. the qualified assignment company. Other advice provided by Nesbitt:
- Nesbitt also admonishes sellers to avoid selling more payments than they need to address their need or achieve their objective with a fudge factor allowance.
- Don’t let anyone pressure you into a transaction.
- Read the documents that they send you. There are funding companies, unfortunately, that include provisions in the transaction documents (i.e. rights of first refusal, onerous arbitration provisions requiring arbitration in far away places and impose arbitration fees on the payee, etc., security interests in all of one’s payments, etc.) that should be considered carefully and which might not be beneficial to the payee.
- Sometimes, the company offering the most money for a particular transaction is still not the payee’s best option.
- Review carefully stipulations provided by issuers/obligors. There are indemnity provisions in there that could be problematic in the future.
- Here's an interesting one that you don't see everyday "Don’t ever advance money to a funding company or a broker who claims that they will help you get your deal approved".
- As I would expect him to do, given his representation of them, Nesbitt recommends doing business with a funding company that is a member of NASP.
- Mistaken thinking that the sale of structured settlmeent payment streams are a fast and simple procedure [Isn't that a function of the misleading and false advertising pitches of some that use words like "cash now" to describe cash that is subject to court approval in 30, 60, 90 days or longer?]
- Mistaken thinking that all purchasers are the same, when the issues of ethics , customer services and business practices...are vastly different.(emphasis ours)
- Mistaken thinking that there is a standard discount rate
- Not taking the time to think things thorugh
- failing to consider the meaning of financial terms like present value and interest rate
- Beware fast talking salespeople from call centers with high pressure sales tactics
- Letting desperation for cash affect your attention to important details
Terry also addresses servicing, although not by name. the reality is that servicing is a function of whether or not the annuity issuer will dice payments.
In addition to some of the well reasoned answers above, much of which I echo, I would add that consumers need to be absolutely sure of who they are dealing with if they are considerings selling structured settlement payment rights:
- Are they dealing with a real person? One settlement purchasing company CEO has admitted under oath, in a legal deposition, to creating several fake identities, which were displayed in its Better Business Bureau record, that were facing consumers like you. the same individual also created fake LinkedIn profiles in which the fake characters endorsed each other in addition to creating Google Plus profiles and Facebook comments that suggested that company was bigger than it actually is.
- What are the relevant education and financial credentials of the person they are dealing with? Ask for and check out academic credentials. We've already established that two settlement purchasing companies blatantly faked academic credentials in public facing social media.
- Are you dealing with an American company registered to do business in your state? Many companies aren't, leaving you with alot of hassle should you need to seek legal redress if things go wrong. One company claimed to be founded in Maryland but when we checked with the State of Maryland the official records appear to show that not to be the case.
- Does the company primarily operate from a legitimate office address within the United States, or is its primary advertised address really a mail drop at UPS store or other virtual set up. The real operations may be in another country. Just remember that anyone can rent a toll-free number or a phone number that is in your local area code.
- Is someone telling you to "move" to another state to do the deal? If yes, is the company or any of its representatives offering to take you around to establish bank accounts and other items to make believe and create the appearnce for the judge reviewing your transaction you are intending to be domiciled in the other state. If so, you could be engaging in a practice known as forum shopping. Few people cover their tracks well enough as some rudimentary research appears to show. Note that the United States government has the power to levy a 40% excise tax on the discount charged by the settlement purchaser. The IRS pays finder's fees. Do you want to risk being part of a later govermnent investigation?
- If a servicing agreement is required because the annuity issuer will not dice payments then ask about back up servicers, who step in if the primary servicer goes down.
- As idealistic as it may be to consider NASP membership as the "good housekeeping seal of approval", the recomnendation is a bit Pollyanna. All of the forum shopping cases we have been informed about have involved NASP members. Upfront disclosures of familial relationships have not been par for the course when certain NASP members interface with potential customers online, or even on the phone. Moreover, there are also a few non NASP members that we have referred business to from time to time and they have done a good job.
- Take the Better Business Bureau with a grain of salt, or don't weight it too heavily. For some settlement purchasers that is all they have and many of them flout their BBB ratings. When you consider that Sovereign Funding Group is still rated A+ after its CEO David Springer testified June 28, 2013 to providing false information to the BBB, including fabricated company contacts and testified in published testimony, before his attorney advised him to avoid self-incrimination by "taking the 5th" that he impersonated his wife in an online forum because he was not legally allowed to work in the US at the time. As I pointed despite the fact that Springer testified that Melissa Springer, was not involved in the company, her name appeared on the company records with the State of Maryland until July 31, 2013. Many other companies that don't have these issues are also rated A+ and as a result a consumer has no means to differentiate companies that have been more honest than Sovereign Funding Group/David Springer by relying on the BBB ratings alone. One assumes that the actions that David Springer admitted to in his deposition would be considered dishonest to a reasonable person. As I previously reported, the BBB of Greater Maryland is taking a wait and see posture on Sovereign Funding Group's rating, pending the outcome of the legal matter of Woodbridge Structured Funding v Sovereign Funding Group and David Springer. The matter is set for trial in May 2014.