by Structured Settlement Watchdog
Yet another difference between investments in factored structured settlement payment streams are not annuities. When you buy a legitimate annuity, as opposed to one mislabeled one, there is no payment servicing agreement. One investor, a retiree who has a purchased a number of factored structured settlement payment streams over the years, has shared that recent turnover in payment servicers has resulted in his acquired payments being delayed multiple times, sometimes for several months.
What is Structured Settlement Payment Servicing?
Structured settlement servicing comes about if you are only selling part of your structured settlement payment. Some life insurance companies will not split or dice annuity payments. THIS is the reason there is a need for servicing and the scenario where servicing applies. If, for example, you have a structured settlement that is funded with an annuity from "Longevity Annuity Life Insurance Company" and you're content to continue receiving payments as scheduled, there is no need for structured settlement servicing. Servicing, on its most basic level, means that the entire structured settlement payment (not just the amount sold) goes to the factoring company, its servicing arm or a third party servicing company which splits/dices the payment. The result is that the factoring company receives the transferred structured settlement payment rights it bought from the seller and passes the difference on to the selling annuitant.
Servicing is common in the mortgage industry. You may fill out an application to one mortgage company and after your mortgage is approved you receive a notice that payments are to be sent an entirely different bank, which is servicing the mortgage.
Potential Bankruptcy of Payment Servicer Was An Issue I Raised in 2009
In October 2009 I did a couple of podcasts on the subject of how a bankruptcy of a payment servicing company would impact an investor in structured settlement payments rights. The podcasts featured Bruce Akerly, a bankruptcy attorney from Dallas , Texas who conceded that even though things might turn out OK for the investor in the end, that there might be a delay and possibly legal expense to enforce/protect their rights. One month later the topic I raised was the subject of a presentation at the annual meeting of the National Association of Settlement Purchasers. A number of my sources in the secondary market claimed in the following months that they had servicers and back up servicers.
Use of Servicing by Tertiary Market Companies Selling Factored Structured Settlement Payments to Investors
Some of the tertiary market players use a servicer to administer payments so they can chop up one annuity payment stream into different chunks to sell to different investors. They also use the servicer to provide a means for the investor to re sell the rights to someone else.
A layer of complexity is added to the process when you are further removed from direct contact with the annuity issuer. If you buy a sliver of 1/3 of a factored structured settlement payment stream you must also rely on the servicer to handle payments to your beneficiaries and to maintain your wishes even if there is a change (or multiple changes) in servicers years into the future.
Then you have this
In one case a payment assignee's representative notified the annuity issuer that the payment assignee (not qualified assignee) died, but the annuity issuer inaccurately entered it into their system that the annuitant died. When the servicer contacted the beneficiary to express its condolences they learned that the alleged decedent was very much alive. A representative of the annuity issuer then asked for proof that the annuitant was alive, when the mistake was theirs in the first place.