On May 26th, 2010 Judge Norma Ruiz denied a request for court approval to transfer future structured settlement payment rights to Settlement Funding of New York, LLC (Peachtree Financial). The opinion, seen here, is a direct response to the “cash now” advertising of this company. It’s good to see a judge take the time to enforce the Structured Settlement Protection Act as noted by this author.
Most everyone has seen some version of a commercial about structured settlements, usually tied into “getting cash now.”
It can be confusing, complex topic, and many companies are not communicating accurate information. It’s actually a simple concept, but the legal documents make it seem much more complicated than it is.
What is a structured settlement?
A structured settlement, strictly defined, is a negotiated agreement in a tort action to provide payments over time. It happens after a court process where one party was hurt and the other party is told to pay. The matter could be personal injury, worker’s compensation for an on-the-job injury, property loss, wrongful termination or a wrongful death claim where a spouse and/or minor children are seeking compensation for lost wages and intangible support, or similar issues. Structured settlements are not usually considered for minor or short-term injuries.
It should be noted that lottery payments are not structured settlements. Those are agreements for periodic payments over time. There are fewer regulations on how to cash-out those payments – turning that revenue stream into a single payment.
In this video, Andrew Cravenho, President of the Settlement Quotes, LLC Structured Settlement Factoring Exchange is interviewed by John Darer of the Legal Broadcast Network. Viewers can learn how a Structured Settlement Factoring Exchange is a viable option to use when selling structured settlement payment rights.
What is the servicing of structured settlement payments?
The servicing of structured settlement payments occurs when an annuitant enters into a structured settlement factoring agreement in which the annuitant chooses to split one or more payments and the factoring company becomes the payee of the entire payment. Once the factoring company receives the entire payment from the insurance company, they keep their agreed upon amount and pay the annuitant their portion.
Last week the NASP met for their annual meeting and a few individuals have blogged about the event. This author would like to comment on a few points brought up by other authors.
Insurance Companies Purchasing Their Own Product
There are currently two issuers who factor structured settlements- Allstate and Clearscape Funding (Symetra). The problem with these two companies is that they have high discount rates starting at 10- 12%, they take forever to complete a transaction, and it is a conflict of interest to purchase the settlement on the back end and make another profit off of the annuitant.
An annuitant can receive a better rate anywhere.
Reasons an Annuitant Sells the Rights to Their Payments
Over the past few months Settlement Quotes has been keeping track of the reasons our clients have sold the rights to their payments. With the consent of these individuals we will be publishing the list to show how 99% of these individuals had no choice but to sell their payment rights because of their particular financial circumstances.
The following two questions were asked by John Darer of Structured Settlements 4 Real:
The answer to this is quite simple. An annuitant cannot forgo the court approval process in a structured settlement factoring transaction. Here is why:
John Darer of Structured Settlements 4 Real published a disturbing article yesterday afternoon about an individual interested in selling the rights to a structured settlement with the following details:
In April 2006, Jamel Knight settled a personal injury case for $1.6 million up front and a structured settlement of $400,000 to be paid at a rate of $1,978.11 per month for the rest of his life, guaranteed for 30 years.
Mr. Knight did the following with his money:
“Ostrov states that the factoring industry average effective discount rates are 16% compared to the average credit card rates of 21%.”
In this author’s opinion a 16% average effective discount rate for all structured settlement factoring transactions completed throughout the states over the past 12 months is most likely fairly accurate. This author arrived upon this figure for the following reasons
DealFlow Media (DFM) wrote in their recent structured settlement wire that 321 Henderson, a J.G. Wentworth affiliate was denied a transaction in New York this past week. In their report DFM stated that a 90% discount was applied to the case. The report did not specify the exact payments that were being sold, but the article did provide a few numbers that we can run some calculations with.
It was reported that JG Wentworth was purchasing $102,948.57 of future payments for a net amount of $10,500. DFM states that this transaction has a rate of 10.2% which is false. Structured settlement factoring transactions are priced using discount rates. The rate of this transaction was 8.78%, which is actually a good rate. Even though this transaction had a good discount rate, the factoring transaction would not be in the best interest of the annuitant due to the reasoning for the transaction.
Settlement Quotes would have recommended that this individual try other resources to purchase a vehicle. Cashing out a structured settlement to purchase a vehicle is most of the time not in the best interest of an individual, especially with the rising costs of energy.
In the future, DealFlow Media needs to use correct verbiage when reporting structured settlement factoring cases. Settlement Quotes has built several calculators that are able to calculate the discount rate of all types of factoring transactions. JG Wentworth or any other company would not have tried to factor a transaction with a discount rate of 90%, which would have left the annuitant with a penny.
Other DealFlow Media Inaccuracies.