by John Darer® CLU ChFC MSSC RSP CLTC
The fat sales pitch from a member of the National Association of Settlement Purchasers is this "Paying rent is a pretty secure way of draining your potential income. Why stay in an apartment or house that someone else owns, when you could have the security of your own home?" Let's examine what the settlement purchaser has said in the context of soliciting an annuitant to part with his/her structured settlement payments.
Holes in Regulation Exposed by Conduct of NASP Member Settlement Purchaser Who Did Not Do Adequate Due Diligence
Yesterday, I received a call from a New York City annuitant who expressed second thoughts about a potential deal with a member of the National Association of Settlement Purchasers, stating they felt they were "getting ripped off." Through their responses to my subsequent triage questions, it became evident that the NASP member's representatives had failed to perform adequate due diligence on this annuitant and were prepared to submit a petition for transfer regardless.
The NASP member in question acted irresponsibly and recklessly, potentially endangering a New Yorker by not withdrawing the transfer petition or if a judge had approved the deal. While shelter and transportation may often justify structured settlement transfers, it is the judge's responsibility to make a judicial determination that the transfer serves the best interest of the New York structured settlement annuitant and any relevant dependents.
The amount offered by the NASP member settlement purchaser would have consumed half of the New York annuitant's income stream, leaving them below the New York City Living Wage Line of $29,744. Additionally, the lump sum provided would have been insufficient to achieve their intended goals. After conducting a more thorough analysis and calculations, it became evident that this was not a prudent decision. Source: MIT Living Wage Calculator
Renting vs Owning
On average, renters pay more on an annual basis for shelter, but they pay less in every other category. The biggest difference between the two is in maintenance, repairs, and insurance. This only makes sense, because it is the landlord's responsibility to pay for maintenance and repairs, and renters insurance is dirt-cheap. The second-biggest difference also shouldn't surprise you: Renters spend far less on household furnishings than homeowners. Renters likely spend less as it is a pain to move furnishings Source: Bureau of Labor Statistics
Warren Buffett once said, "All things considered, the third best investment I ever made was the purchase of my home (52 years of terrific memories), though I would have made far more money had I instead rented and used the purchase money to buy stocks.
Some of the potential expenses that should be added up conservatively to determine of such a home/condo/co-op purchase is affordable
- Mortgage interest and charges or rent
- Maintenance, repairs, insurance and other expenses
- Real Estate taxes
- Garbage removal
- Gas
- Telephone
- Cable
- Food
- Clothes
- Entertainment
- Furnishings
- Common charges (if condo or co-op), accounting for potential increases
- Accounting for possible assessments (condos, co-ops particularly older buildings) and tax increases
"Recession Generation Opts to Rent Not Buy Houses to Cars"
In an August 8, 2012 Bloomberg article, Cliff Zukin, a professor of public policy and political science at the Edward J. Bloustein School of Planning and Public Policy at Rutgers, the state university of New Jersey, opined about 20-34 year olds, that "this is a generation that is scared of commitment, wants to be light on their feet and needs to adjust to whatever happens” Zukin, who researched the effects of the recession on recent college graduates continues “What once was seen as a solid investment, like a house or a car, is now seen as a ball and chain with a lot of risk to it.”
Interstate Forum Shopping Targeting New York residents is Alive and Well Despite Passing of New Florida Law
The New York structured settlement annuitant indicated that from the time he/she spoke to NASP member "A", he/she was flooded with phone calls from other companies including one which suggested that he/she, a New York resident, do a an already unsuitable deal in Florida. As the legal matter of Lafontant v Imperial Holdings shows , the advantage to a settlement purchaser of doing a deal in Florida vs New York is that a self serving settlement purchaser can gain an arbitration clause that is likely to favor them. Upon information and belief, New York prohibits such arbitration clauses in structured settlement transfer deals approved in the state.
Always consult with a licensed and credentialed settlement consultant
Because there is no current regulation requiring settlement purchasers (or representatives of settlement purchasers) to be licensed before soliciting you or providing financial advice like other financial professions, you should be very wary of gimmicky financial advice dispensed by them. Some companies may not even be registered to do business in the State of New York. Annuity Sold, a website now listing a Baltimore Maryland address, even fraudulently claimed in September 2015 to be "licensed and qualified in all 50 states" to purchase payments.
Here is a perfect example of inarticulate explanation of structured settlement payments made by the unlicensed Annuity Sold (which claims that "senior annuity specialists" are on staff) "Guaranteed payments are just as the name implies. These payments are guaranteed and will be made to you or your beneficiaries regardless of whether or not you are alive".
Fact: All payments from a structured settlement are contractually guaranteed. Even life contingent payments. The use of the term "guaranteed" can therefore be confusing to consumers. It is generally better to use the term "certain" to differentiate payments that are contractually guaranteed to be paid whether or not the payee survives the entire payment schedule, from contractually guaranteed life contingent payments. Such a definition (and the distinction) is one of the basic terms of an annuity that one must know to pass any state insurance license exam.