Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and Commentary

Liberty Life Assurance Company Will Split Payments on Partial Sales of Structured Payments

by John Darer CLU ChFC CSSC RSP

Liberty Life Assurance Company of Boston will split structured settlement payments effective February 1, 2013, thereby removing the need for servicing arrangements when Liberty Life annuitants move to sell only a portion of their structured settlement payment rights.

I have written extensively on the subject of structured settlement servicing and see this action by Liberty Life Assurance Company as positive. Liberty is not encouraging factoring, however Liberty is doing the right thing for its annuitants, for the structured settlement industry and rightfully protecting its brand.

• If one has to go down the road of selling structured settlement payments  (due to a lack of feasible money raising alternatives), it makes sense to sell as little as possible so as to preserve the stable source of income that the structured settlement provides.
• When a servicing agreement is necessary, because the structured annuity issuer will not do "the split", the entire payment is transferred to the factoring company and the annuitant must rely on the servicer to split the payments.  This can result in delays and may also expose the payee to the bankruptcy of the servicer [ note that some companies have back up servicers]
• Structured settlement payment servicing results in lost branding for a life insurance company because in many cases, routine customer contact  (change of address, beneficiary etc) must flow through the servicing company. A bad experience with the servicing company could potentially harm the reputation of the insurance company, the structured settlement broker or settlement planner who placed the annuity in the perception of the annuitant. In 2009, I spoke with a Connecticut annuitant, who was rebuffed when contacting them with a question and referred to a servicer, which turned out to be the same factoring company she had sold only 16% of her monthly structured settlement payment rights!
  

It was important to elevate the awareness of issues related to servicing of structured settlement payments, as I did in blogs and video podcasts beginning in 2009.

 

Related reading

Structured Settlement Payment "Servicing" When Selling Your Structured Settlement

Note that transfers of structured settlement payment rights must be approved by a judge as being in the best interest of the structured settlement payee and any applicable dependents.  Structured settlement factoring transactions are subject to the provisions of Internal Revenue Code Section 5891 and applicable state structured settlement protection acts.

Liberty Life Assurance Company of Boston, has been in existence for almost half a century and is a subsidiary of Liberty Mutual Insurance Company, a company with over 100 years in insurance.  Though the BARCO Assignments, Ltd. non qualified assignment facility, Liberty Life Assurance Company of Boston gives structured settlement consultants and settlement planners tools to offer innnovative solutions for claims and litigation where there are taxable damages.

Structured Settlement Payment "Servicing" When Selling Your Structured Settlement

If you are selling your structured settlement in September 2012, can a settlement purchasing company prevent structured settlement servicing?

In discussing important consumer criteria, one settlement purchaser says when selling your structured settlement

"it isn't all about the price either. It's about:

• knowing you will be guided through the process in an easy and comfortable manner.
• not having your payment stream 'serviced' and payments you don't
  wish to sell put under a company's control, because maybe you will find
  a better offer down the road if you wish to sell again"

What is Structured Settlement Servicing?

Structured settlement servicing comes about if you are only selling part of your structured settlement payment. It is my understanding that most life insurance companies will not split 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 New York 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 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.

The settlement purchaser who published the above cited text about servicing insinuates that some factoring companies who act as servicers block the implementation of competing offers to purchase if a selling annuitants wishes to sell additional structured settlement payment rights at a later time. This is not a unique issue and one that the settlement purchasing company's competitor, RSL Funding,  has raised in litigation against another competitor. The settlement purchaser insinuates that doing business with the settlement purchaser will prevent such servicing. How can this be?

The fact remains that as long as the status quo remains, a factoring company cannot control whether there is servicing or not if there is a partial "dice" of structured settlement payment rights.

The Structured Settlement Watchdog™ John Darer™ has written extensively on issues related to servicing, including questions about the rights of structured settlement annuitants to remaining payments if the servicer were to go bankrupt. His two part video podcast series here and here on the topic on LBN, which included an interview with Dallas bankruptcy attorney Bruce Akerly, was followed by a white paper and presentation on the topic by the same attorney at the National Association of Purchasers annual meeting in November 2009.  I understand that it is common practice for there to be a back up server as well, but partial sellers should ask the question.

Here's a selection of some of John Darer's blogs on structured settlement servicing.

Structured Settlement Servicing By Factoring Companies Redux

Sell Structured Settlement Payments More than Once | May Need to Deal with MULTIPLE Companies For 'Simple" Administrative Requests

Structured Settlement Servicing Companies | Where is the Payment Servicing Company Incorporated?

by Structured Settlement Watchdog

Sellers of structured settlement payments can save themselves potential heartache if things go bad,  by checking to see where the structured settlement buyer soliciting them is based BEFORE deciding to do business with the structured settlement payment buyer. Some structured settlement buyers are established in states with strict asset protection and privacy laws. Others draw business in using off shore or domestic websites or blogs that are Privacy Protected so you really don't know who you are doing business with.

This should be of particular concern when dealing with an unregulated or under-regulated industry such as structured settlement factoring and re-marketing of structured settlement payment rights.

When you are asked to sign a contract the contract will state something to the effect that it is between you and XYZ Company, a (name of state) corporation or(name of state) Limited Liability Company (LLC).

Consider that one company that promotes Nevada company formation boasts:

"Some states are known for their famous governors, monuments and parks….Nevada, on the other hand, is known for its strong stance on protecting the rights of its business owners, by passing some of the most aggressive asset protection and privacy legislation in the country"

Some of the bullet points used to attact business owners to Nevada:

• In Nevada, liability stops with the corporation. As an officer or director, you cannot be held responsible for lawsuits against your corporation except in the case of outright fraud. Directors, officers, employees & agents are indemnified from liability by statute
• Shareholders are not revealed to the state.
• It is very hard to pierce the veil of a Nevada corporation.
• Nevada also does not require corporations to file a list of assets. Therefore, the corporation's assets are not linked to you in any way.

In my opinion when it comes to your money decisions,  think twice about doing business with a company that appears to place more importance on its own privacy and asset protection than transparency to you, the consumer.  Your savings and investment is one thing you DON'T want to stay in Vegas.

 

Factoring Company Says Sell Part of Structure to Get Statutory Protection

by John Darer CLU ChFC CSSC RSP

A cash now pusher/factoring company with ties to a prominent plaintiff structured settlement broker uses caps on statutory protection for annuities to justify that a possible sale of a portion of your annuity or structured settlement payments to re-invest the money may be an appropriate strategy, in the glossary that appears on its website. (March 17. 2012 1:15PM EDT)

Although it is not expressly stated, the theory appears to be if the present value of the existing structured settlement exceeds the statutory cap, the factoring company opines that it may make sense to sell some of your structured settlement payments to bring the present value under the cap and reposition the money.

Caution: Selling structured settlement payment rights will ALWAYS bring with it a financial loss to seller.

If you are thinking about selling, you should picture the sale of future benefits as a loss of capital (even though technically the seller only has the right to receive the payments). In order for such deal to make economic sense the seller would have to have a guaranteed investment opportunity that can make up for the loss that the seller of the structured settlement would incur.

One such strategy that the seller may encounter in the current marketplace in combination with the above is an "opportunity" to purchase re-marketed structured settlements, sometimes labeled SMAs, Secondary Market Annuities, Used Annuities, Recycled Annuities. The tertiary market for structured settlements is something that a number of structured settlement brokers and settlement planners are involved with. The tertiary market refers to rights to structured settlement payments that others have previously sold which are then acquired by someone else from the buyer in the first sale. The cash flows often bring with them nice yields.

Let's Blackboard This Concept With a Hypothetical

Selma Nooity has been receiving payments from her structured settlement with "Sauerkraut Mutual Life" since the settlement of her medical malpractice claim in 2008. The remaining payments have a present value of $750,000 in a state where the statutory cap is only $500,000. It follows that the factoring company appears to be of the opinion that the sale of $250,000 present value, in this example, might make sense to bring the present value within the statutory cap.

Her financial planner suggests Selma replace the lost cash flow by buying a series of re-marketed structured settlements from "Bratwurst Capital".

Discussion

Structured settlement payments from Selma's original structured annuity are income tax free. To make sense, any opportunity " to re-invest" would have to provide (1) similar guarantees; (2) make up for the capital loss resulting from the sale of structured settlement payment rights; (3) assuming that an income stream is still desired by the seller, the opportunity would have to make up for the loss of income tax free cash flow that the seller is currently receiving from the structured settlement payments proposed to be sold; and (4) assurance that the consequences of the two transactions are completely understood by the seller. The two transactions are (1) the sale of a portion of existing structured settlement (the sale transaction") ; and (2) the purchase of structured settlement payment rights from someone else (the buy transaction") . For example, does the seller understand that even if only a portion of the structure is sold and the payments are being serviced, the plaintiff can no longer get information from the annuity from "Sauerkraut Mutual" and must deal with the likely much smaller servicing company?

The sale of structured settlement payment rights is regulated to the degree that to close "the sale transaction" a judge must approve the transaction. This is not automatic.

It is also not clear that statutory protection runs to re-marketed structured settlements. Buyers with concerns about statutory protections that apply to he secondary or tertiary markets should avoid purchasing re-marketed structured settlements until the ELNY liquidation proceedings (began March 15, 2012) have been concluded. A number of factoring companies who have acquired ELNY structured settlement payment rights from the annuitants, have filed objections to the ELNY restructuring plan (which would appear to leave buyers in the lurch).

Unfortunately there is absolutely no license requirement, regulatory control, or control over the solicitation methods used by buyers of structured settlement payment rights, or the promoters of re-marketed structured settlement cash flows. Some of those who have entered this arena who derive most of their business from creating structured settlements in the primary market operate this aspect of their businesses covertly, an admission of sorts.

Most states have statutory prohibitions on discussion of statutory protections related to the sale of an insurance product including an annuity. Re-marketed structured settlement payment rights are not annuities.

In Closing

The factoring company's positioning as a "helpful suggestion", belies the unequivocal message on the home page of the factoring company which barks to structured settlement and annuity holders "Don't Wait For Your Money" and asks the leading question" Why Wait 10, 20 or 30 years when you can get your money in One Lump Sum".

If one "connects the dots", how does the prominent plaintiff structured settlement broker resolve the mixed message of one business that carries the above unequivocal message tpo sell at the same time his other business is actively promoting the benefits of structured settlements and admonishing plaintiff attorneys that they could be held responsible for failing to present structured settlements to their clients in resolving their cases?

Customer Service Phone Numbers For Structured Settlement Companies

Trying to contact a structured settlement company to change an address, but don;t know the telephone number. Well 4structures.com can help!

The 4structures.com website has a comprehensive list of both current AND former structured settlement annuity companies. 

Go to 4structures.com to find the structured settlement customer service number now

Please note:

If you are the parent or guardian of a child who over 18 years old, the structured annuity company may require that your child or ward contact the company for privacy reasons.

Certain requests, like a change of beneficiary or bank account, will require a change request in writing and may even require a notarized signature for your protection. 

If you (or your child, if applicable) has moved since the structured settlement was set up and neither of you has a GPS chip implanted in you, then you've got to let the company know about it if you want to receive your payments on time. It is generally the  obligation of the payee of the structured settlement to notify the annuity issuer of any change of address or bank account (if direct deposit applies).  We receive quite a few calls from annuitants from all around the company who see our website and contact us for help in determining why they haven't received a payment. The majority of cases involve a failure to notify the insurer of a change of address.

If you have sold some structured settlement payment rights in the past it is possible that you may have to contact the company that is servicing your structured settlement payments. This is unfortunately necessary because many life insurers will not dice* payments between two places necessitating that you transfer all of the payments and then the servicer dices the payments. It may take some detective work to determine who to call, It may be helpful to check the closing paperwork from the structured settlement sale transaction.

* e.g. You are due $2,000 per month for 10 years and you sell the rights to $750 per month of those payments for 10 years

 

 

Exploring In Force Structured Settlements-3: Used Annuity Lots

by John Darer CLU ChFC CSSC RSP

Is there a  life insurance company owned "used annuity" lot in your future?

Go ahead have a good laugh. Then put your thinking cap on!   

1. If annuity issuers could buy back structured settlement payment rights to give liquidity to its existing annuitants, would it not mitigate the risk of Chapter 7 bankruptcy of structured settlement servicing companies,  the need for which it  has been well established is primarily due to the lack of willingness of life insurers to split annuity payments when a seller is only factoring part of their structured settlement, annuity or lottery payment?
2. Would it not mitigate the mind numbing inconvenience, confusion and cost for annuitant-sellers who factor with more than one funding source to have to go to multiple sources  for administrative changes, most likely none of which is the insurance company that the annuity was placed originally with?
3. Would it not be better from a variety of standpoints, because:

• • The insurer could control the inventory of its "used annuity lot" and the distribution channel as well as not suffer a break in its branding.
    A classic example of branding loss is the CT Woman story, where a large annuity was sold in August 2008 by a structured settlement broker to "the CT Woman"  Within a month the same structured settlement broker was in touch with a factoring intermediary to help facilitate a factoring deal. The deal was pipelined through Structured Asset Funding and required a servicing agreement because we understand the life company would not split payments. That this author has previously questioned the job done by the broker in considering the cash needs of the annuitant (she ultimately suffered a severe loss of capital on a safe investment) or the deal took 6 or so months to consummate, is now the side show to this story. The insurance company lost the branding opportunity with its annuitant and worse it got negative branding because of "factors" that could have been easily avoided.
  • There would be little need for the insurer to spend the kind of loony advertising dollars that JG Wentworth and Peachtree do to get business AND THAT SAVINGS COULD BE PASSED ON to annuitants;

•  
  • by requiring insurance licenses of all of those in the distribution channel there is improved regulatory oversight. Think suitability and better qualified people handling peoples' questions. No more life impacting financial advice disseminated from call centers manned by those with  only a few week training program
  • Economies of scale could be utilized in the technology area to enable agents to be able to easily identify and illustrate blends of primary and secondary market cash flows as well as other multi product solutions. More work for Navysis designing a new software package putatively named "Quote in and out of the box"
  • One would also think that available capital is more plentiful for insurers than factoring company.

Wouldn't  a consumer feel better knowing that a licensed agent is checking "under the hood"?

 

 

Sell Structured Settlement Payments More Than Once: Need To Deal With MULTIPLE Companies for "Simple" Administrative Requests

by John Darer® CLU ChFC CSSC RSP

A new issue about "servicing" of structured settlement payments has presented itself.

Previously published blogs and podcasts have addressed structured settlement servicing agreements which only come into play when:

(1) A structured settlement annuitant sells only part of their structured settlement payment rights to a factoring company or "cash now pusher"; AND

(2) The life insurance company issuing the structured annuity chooses not to split payments

A servicing agreement means that the entire annuity payment (NOT JUST THE PORTION BEING SOLD) is paid to the servicing company which then skims off what is due the factoring company and then pays the annuitant the difference, possibly with associated fees. A servicing company MAY be the factoring company purchasing the payments or it may be a 3rd party company that specializes in servicing.

I've also discussed the negative consequences of entering into a servicing agreement:

(1) Potential exposure to additional costs and delays to protect and/or recover based on your rights in the event of Chapter 7 bankruptcy of the servicing entity.

(2) No longer able to contact the life insurance company that issues your structured settlement to change address, change beneficiary, change bank or answer even the simplest administrative  questions. As a positive aside,  I want to remind readers that 4structures.com, LLC is in the process of compiling a list of and names and phone numbers of servicing entities for the benefit of consumers and the profession.

NEW ISSUE

• Now suppose the annuitant sells a portion of the structured settlement payments (from an insurance company that won't split payments) to factoring company A, which is also the servicing entity.
• Several years later the annuitant sells some more to factoring company B that either services itself or uses a third party servicer.
• Now the additional layer requires that even the simplest administrative change requires notification to two separate entities, none of which is the annuity issuing insurance company that you set up your structured settlement with, The more times you sell and the more times you use different entities the worse it gets.

FURTHER COMMENTARY

Learn all you can and recognize what you are getting into if you need cash and are thinking about selling structured settlement payment rights.

What are the primary market and secondary markets going to do to solve this problem which in reality is insurance company driven NOT factoring company driven? 

While the percentage the burden of the extra costs is passed on to the consumer one way or another, perhaps these companies will realize the lost branding opportunity and consider an alternate solution.

JG Wentworth indicates that life insurance companies ARE purchasing their securitzations (asset backed securities backed by factored structured settlement payments) for their own portfolios, although does not distinguish which ones are buying, or if those insurers are concurrently issuing structured annuities. There is nothing illegal about buying the securitizations. If one really wanted to know, one could probably find this information through an examination of publicly available corporate filings of such insurers. My point being, if a company is insisting on servicing agreements to save money and they are in turn making money on the securitizations, perhaps some consideration for "the little guy" is in order.

  

Structured Settlement Servicing By Factoring Companies Redux

by John Darer CLU ChFC MSSC RSP CLTC

Settlement Capital's Matt Bracy aired the 2nd in a two part series "The Problem With Factoring" on the Legal Broadcast Network (LBN) and does an excellent job addressing the subject of servicing of structured settlement payments by factoring companies. This author, John Darer, aired a 2 part series on the subject of factoring company servicing of structured settlement payments in October 2009 on LBN.

Key points

1. Servicing is a chore for factoring companies caused ostensibly by the unwillingness of SOME structured annuity insurance companies to split payments when the annuitant is not selling all of their structured settlement payment rights. The end result is that as a result of some of the annuity issuers' unwillingness to split payments, annuitants heir clients WILL NOT BE RECEIVING THEIR PAYMENTS DIRECTLY FROM THE ANNUITY COMPANY ANYMORE. They will be dealing with the factoring company.
2. Many state structured settlement protection laws essentially state that the annuity issuer CANNOT be forced to split the payments.
3. Bracy validates my servicing question and states that while insolvency of the factoring company may result in the annuitant ultimately getting their payments, there "surely will be a delay and there may be costs involved" to the annuitant..The same conclusion that TX lawyer Bruce Akerly and I reached in October 2009.
4. Bracy states that some, but not all companies have back up servicers. His does.
5. Bracy states the good news is that there has yet to be an insolvency. The same perhaps could be said of structured settlement issuing companies prior to 1991. We all now know the effect of Executive Life. Sufficed to say that many of the insurance companies issuing the annuities have billions more assets than any of the factoring companies.
6. Sellers of structured settlement payment rights should be looking closely at the documents. Common sense. (1) Beware of attempts to bind you into a right of first refusal to the servicing factoring company (2) Check for any fees charged for the servicing (3) Check for back up servicing (or bonded 3rd party servicers (as suggested by Andrew Cravenho)
7. In a nod to John Darer's relentless attack on what is in his opinion the questionable business practice of Structured Asset Funding, LLC suggesting in its advertising, that fancy sports cars and boats are a reason to sell structured settlement payment rights, interviewer Scott Drake questions the ethics of such practice. Bracy emphasizes that each structured settlement factoring transaction requires court approval and he doesn't believe that anyone would have the guts to seeks Court approval using a boat or fancy sports car as part of the "best interest" prove up. Coincidentally Structured Asset Funding's website has been disabled at the time of this writing. Stay tuned!

View "The Problem With Factoring 2-Servicing"

View Structured Settlement Servicing Agreements-Good Or Bad  Part 1 Oct. 2009

View Structured Settlement Servicing Agreements-Good Or Bad For Annuitant? Parts 2A and 2B (with Bankruptcy Expert Bruce Akerly) October 2009

<

Links and Exhibits of Interest

• Wikipedia entry for Structured Settlement Factoring Transaction entitled "Controversy Concerning "Servicing" of Structured Settlement Payments By Factoring Companies" 
• John Darer's August 10,2009 email to NSSTA President Dan Durbin and President Elect Mike Kelly copied to the NSSTA Board of Directors and other industry notables. Download 8-10-2009 email to NSSTA President Durbin and President elect Kelly with copies to Board members and othersThe content is self explanatory. The NSSTA has not responded to this author or addressed this issue with its membership.  WHY? NSSTA members include life insurance companies, among them those who do not split structured settlement payments.
• Our August 17, 2009 post Matt Bracy Says That Structured Settlement Servicing Is The Fault of The Life Insurance Companies Issuing Structured Settlement Annuities.  Only one life insurance company responded!
• Our April 23, 2008 post "Factoring Company "Servicing" of Structured Settlement Payments-Thought Leaders Butt Heads"

"Structured Settlement Bankruptcies" or Annuity Servicer Bankruptcies?

by John Darer CLU ChFC MSSC RSP CLTC

Patrick Hindert apparently needs better reading glasses. The Executive Director of The Settlement Services Group inexplicably refers to the potential bankruptcies of annuity service companies as "structured settlement bankruptcies" in a summary of attorney Bruce Akerly's presentation at the National Association of Settlement Purchasers (NASP) about annuity servicer bankruptcies.

A structured annuity servicer, typically a factoring company only comes into play when an annuitant wishes to sell some, but not all, of their structured settlement payment rights. Because certain life insurance companies allegedly refuse to dice or split payments the entire payment goes to the servicing company which does the "slicing an dicing", takes its cut and pays the annuitant the difference.

 
The co-author of the alleged "seminal text" on structured settlements states:

"Structured Settlement Bankruptcies - Bruce Akerly summarized his recent paper titled "The Impact of an Annuity Servicer's Bankruptcy  on the Annuitant and Structured Settlement Purchaser". Akerly's conclusions:

• "The annuity payments received by a structured settlement servicing company, as well as the servicing agreement itself, become property of the bankrupt estate"; and
• "It may be possible to draft provisions in the servicing agreement to anticipate some of the consequences of the servicing company entering bankruptcy and perhaps lessen the impact on all parties."

As the structured settlement industry has already seen with the Scott Rothstein saga, mislabeling has a potentially deleterious effect on public perception of structured settlements given that the misinformation will be indexed on the Internet for some time to come.

Note: Underline added by this author for emphasis

Watch John Darer's  3 part Legal Broadcast Network video podcast on Structured Settlement Servicing, which includes an interview with Bruce Akerly. Darer's interview with Akerly occurred in October 2009, the month prior to the presentation of the paper that Hindert commented on.

Structured Settlement Payment Servicing From The Factoring Insider Perspective

by John Darer® CLU ChFC MSSC RSP CLTC

Andrew Cravenho of the Settlement Quotes, LLC, a structured settlement factoring intermediary, shares his thoughts on structured settlement payment servicing in his post dated November 9, 2009.

Cravenho said:

"The process of servicing payments for structured settlement recipients after completing a structured settlement factoring transaction is not a new practice and is a common occurrence in the industry".

"The issue is caused when an annuitant decides to sell only a portion of their payment. Rather than selling an entire payment, they decide to keep a portion of that payment and dice the payment in half or as they see fit. Most insurance companies will accommodate this process and send the appropriate portions to both parties, the tort victim and the investor. The problem arises when a structured settlement factoring company does a transaction with an annuitant who decides that they want to dice payments and the issuer is 1 of the 3 companies who will not dice the payments".  WHO ARE THESE INSURANCE COMPANIES?.

Cravenho sees the following problems:

• Certain structured settlement factoring companies were using this scenario as an excuse to service annuities that did not need to be serviced
• The annuitant no longer owns the rights to their future payments
• If the annuitant was ever in a situation where they needed to sell more payments, the structured settlement factoring company who completed their last transaction is the only company that is able to complete any  future transactions for that individual. Cravenho says this raises the potential for price gouging

Cravenho suggests the following possible solutions:

1. The first solution would be to have the insurance companies who currently won’t dice payments, start dicing payments. This would eliminate any and all need for any structured settlement factoring company to service payments.
2. Companies who may need to service payments should use a third party bonded, insured, and licensed company to handle their servicing.

Watch John Darer's Legal Broadcast Network video podcasts on Structured Settlement Payment Servicing

Six months ago I wrote this email Download John Darer email re servicing question to NSSTA Executives 5-15-2009 to NSSTA executives and structured settlement market leaders and outlined the issues. While I did receive an email acknowledgment of the receipt of the aforementioned email from an NSSTA executive the day it was sent , there has been no further NSSTA response to this author or to the general NSSTA membership.