EFFECTIVE DATE: 5/6/87
AR 87-3(9): Hart v. Bowen, 799 F.2d 567 (9th Cir. 1986) Current Market Value of an Installment Sales Contract as an Excess Resource
Whether the current market value of an installment sales contract is considered an excess resource for supplemental security income (SSI) purposes when the installment sales contract results from the sale of an excluded home and its current market value is not reinvested in a new home within 3 months of receipt but the periodic installments received under the contract are reinvested in another excluded home within 3 months of receipt.
Section 1613 of the Social Security Act (42 U.S.C. Section 1382(b) 20 C.F.R. Section 416.1212(b) and (d)
NINTH (ALASKA, ARIZONA, CALIFORNIA, HAWAII, IDAHO, MONTANA, NEVADA, NORTHERN MARIANA ISLANDS, OREGON, WASHINGTON)
Hart v. Bowen, 799 F.2d 567 (9th Cir. 1986)
APPLICABILITY OF RULING:
- This Ruling applies to determinations or decisions at all administrative levels (i.e., initial, reconsideration, administrative law judge hearing and Appeals Council).
DESCRIPTION OF CASE:
Evelyn Hart is an applicant for SSI benefits. On April 12, 1979, Mrs. Hart entered into a real estate contract for the sale of her home. The total sale price of the former home was $15,000. The contract governing the transaction required a $2,000 down payment to Mrs. Hart and payment of the remainder to her in monthly installments.
One month later, on May 24, 1979, Mrs. Hart entered into an agreement to purchase a replacement home. Mrs. Hart purchased this home for $15,000. The contract required a $3,500 down payment and payment of the remainder of the sale price in monthly installment payments.
Mrs. Hart reinvested the down payment she received from the sale of her former home into the down payment on the purchase of her replacement home. Each month Mrs. Hart reinvests the monthly installment payments from her former home into the monthly purchase payments for her replacement home.
SSA terminated Mrs. Hart's SSI benefits when she moved into her replacement home in 1979. Mrs. Hart did not appeal this determination. Instead, she reapplied for SSI benefits on April 12, 1983. SSA denied Mrs. Hart's application for the same reason she was terminated in 1979: the real estate installment contract from the sale of her former home was treated as an excess resource. SSA determined that the contract, with a face value of $13,000, had a current market value of $4,800. On May 18, 1983, Mrs. Hart filed a request for reconsideration. On August 10, the denial was affirmed. Mrs. Hart then requested a hearing before an Administrative Law Judge (ALJ).
On November 14, 1983, a hearing was held before an ALJ in Seattle, Washington. In a decision issued on December 23, 1983, the ALJ found that the real estate contract valued at $4,800 held by Mrs. Hart was an excess resource and upheld SSA's denial of Mrs. Hart's application for SSI benefits. On February 20, 1984, Mrs. Hart requested Appeals Council review of the decision. On April 13, 1984, the Appeals Council denied her request for review. Upon exhaustion of her administration remedies, Mrs. Hart filed a complaint in the United States District Court. A hearing was held before a United States Magistrate. On August 23, 1985, the district court adopted the recommendation of the Magistrate and entered judgment affirming the final decision of the Secretary. Mrs. Hart then appealed to the U.S. Court of Appeals for the Ninth Circuit.
The U.S. Court of Appeals for the Ninth Circuit reversed the district court and rejected the resource counting policy at issue because it believed that the policy contravenes the purpose behind the home exclusion rule in Section 1613(a)(1) of the Social Security Act as implemented at 20 C.F.R. Section 416.1212. The Court of Appeals reasoned that the proceeds from the sale of an exempt home include not only the cash downpayment, but also the income stream realized from the sale. Both the cash downpayment and the income stream must be timely invested upon receipt in the replacement home to qualify for the exclusion.
The Court found that:
- The installment sales contract -- or any similar replacement home financing arrangement -- is therefore property which may be suitably disposed of through the timely investment of the monthly income stream (the proceeds) it generates. The contract itself, however, merely represents the owner's right to receive these proceeds. To the extent the contract has any additional real value as a resource to the SSI recipient, this value is fairly viewed as part of the value of the replacement home, the full value of which is excludable. See 20 C.F.R. Section 416.1212(b) and (d).
STATEMENT AS TO HOW THE DECISION DIFFERS FROM SOCIAL SECURITY POLICY:
20 C.F.R. Section 416.1212(d) provides that:
- The proceeds from the sale of a home which is excluded from the individual's resources will also be excluded from resources to the extent they are intended to be used and are, in fact, used to purchase another home, which is similarly excluded, within 3 months of the date of receipt of the proceeds.
Social Security policy provides that because an installment sales contract accepted in part payment for a house has a current market value, it is both a proceed and a liquid resource. This could result in making the owner of the contract ineligible for SSI benefits because the current market value which was not reinvested in another home within 3 months would be considered excess resources.
The U.S. Court of Appeals for the Ninth Circuit rejected this reasoning and instead viewed the installment sales contract as part of the value of the replacement home, the full value of which is excludable under 20 C.F.R. Section 416.1212(b) and (d).
EXPLANATION OF HOW SSA WILL APPLY THE HART DECISION WITHIN THE CIRCUIT:
This Ruling applies only to cases in which the SSI claimant resides in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Northern Mariana Islands, Oregon, or Washington at the time of the determination or decision at any level of administrative review, i.e., initial, reconsideration, administrative law judge hearing or Appeals Council review.
In cases where an SSI claimant or recipient sells one excluded home and purchases another within 3 months of receipt of the proceeds, accepts an installment sales contract as part of the sale, and reinvests all monies from the sales contract into the purchase of the replacement home within 3 months of receipt of the payments, the value of that contract will be considered part of the value of the replacement home and therefore fully excludable under 20 C.F.R. Section 416.1212(b) and (d).
Date of Publication 5/6/87