Sale of real estate by instalment or deferred payment 108-04070060

Customer advises that they have sold real estate and that the purchase payments are deferred or made via instalments.

Is the documentation of the sale available now?

• Yes, scan the documents for processing and refer to Complex Assessment Officer (CAO). Go to Step 2
• No, request a copy of the sale agreement and loan agreement if a loan agreement was made
• Procedure ends until forms are returned and scanned for processing. When forms are processed, refer to CAO

For Complex Assessment Officers (CAOs) only.

In most cases, customers will have separate sale and loan agreements.

If separate agreements do not exist, use the following as a guide:

• If the contract uses terms that suggest the existence of a loan, for example reference to the repayment of money, this is considered a loan agreement
• If a mortgage agreement exists which is expressed to be security for a loan, this is considered a loan agreement
• If there is no separate loan agreement and none of the above applies, the supplied document is considered a sale agreement

Is there a loan agreement or only a sale agreement?

• If loan agreement, go to Step 3
• If sale agreement only, go to Step 4

For Complex Assessment Officers (CAOs) only.

Money loaned by a customer is an assessable asset. The value is the amount owed to the customer but does not include any interest payable on the loan. Loans are subject to deeming provisions.

Code the loan details on the customer's Direct Investment (SVDI) screen.

See Step 3 in the Determining deprivation and setting a review table.

For Complex Assessment Officers (CAOs) only.

Does the sale agreement state that interest is payable on the outstanding balance?

• Yes, this interest is assessed as income. Code income on the customer's Other Income (OIN) screen. Code the outstanding balance on the Other Assets (OAS) screen. See Step 3 in the determining deprivation and setting a review table.
• No, code outstanding balance on the Other Assets (OAS) screen. To ensure no deprivation of assets has occurred, it may be necessary to obtain a valuation of the payments due. Go to Step 5.

For Complex Assessment Officers (CAOs) only.

The payments paid and/or the payments expected to be paid under the sale agreement will be multiplied by a discount factor to determine if a valuation is required.

The result is compared to the current market value of the property to determine if deprivation has occurred.

The discount factor will depend on:

• the upper deeming rate at the date of the agreement
• the term, in years, for the repayment
• whether the purchase price is paid in regular instalments or as a single payment

Is the outstanding balance to be paid in a single payment or equal instalments?

• If single payment, go to Step 6
• If equal instalments, go to Step 7

For Complex Assessment Officers (CAOs) only.

Calculate discount factor

1 - (N x R) + {N x R x (N - 1) x R/2}

N = term for repayment in years

R = upper deeming rate at the date of agreement, for example 6% is equal to 0.06 at the date of the agreement.

Multiply the amount to be received by the result of the above calculation, that is the discount factor. This gives the estimated current value.

See Step 1 in Table 2.

For Complex Assessment Officers (CAOs) only.

Calculate discount factor

1 - (N x R/2) + {N x R x (N - 1) x R/4}

N = term for repayment in years

R = upper deeming rate at the date of agreement, for example 6% is equal to 0.06 at the date of the agreement.

Multiply the total amount to be received by the result of the above calculation that is the discount factor. This gives the estimated current value.

For Complex Assessment Officers (CAOs) only.

Does the estimated value appear to be less than the current market value?

• Yes, go to Step 2
• No, record details on a DOC. Go to Step 3

If the property appears to have been sold under its true market value, a valuation is required (if not already received) as deprivation may apply.

Deprivation is determined by obtaining an actuarial valuation and a valuation and calculating any difference.

• Request an actuarial valuation to obtain the true value of the purchase price
• To establish the actual value of the home, request a valuation of the property, unless already done because there was not a current market value available previously

When the valuations are returned, determine if deprivation has occurred. The deprivation amount is the difference between the valuation and the actuarial valuation.

Record deprivation details.

Record the details on a DOC.

If it is necessary to update the customer's assets to reflect payments at a future date, a review is required to adjust the customer's asset levels on receipt of future payments.

In Customer First, create a manual review on the Review Registration (RVR) screen and complete the fields as follows:

• Service Reason: customer's payment type
• Review Reason: PRO (Property Settlement Interest)
• Due Date: date of expected change in assets, for example the customer may receive the balance outstanding from sale in 12 months or some other timeframe
• Source: INT
• Date of Receipt: today's date
• Notes: 'Adjust the customer's asset levels on receipt of future payments, see OB 108-04070060.'
• Keywords: SALPAYMT
• Workgroup: leave blank
• Position: leave blank
• Transfer to Region: leave blank

The review will mature on the Due Date coded in the RVR activity. Workload Management will allocate the review for manual action.

The date for the review will depend on the circumstances of the case, for example, the customer may receive the balance outstanding in 12 months, 2 years or some other time frame.

Note: these payments are not income for Social Security purposes.

If there is a loan agreement or sale agreement with interest payable, and the customer has gifted the property or sold it for less than its value, deprivation may have occurred.