Opinion
11-220.
Decided May 4, 2011.
TREVETT CRISTO SALZER ANDOLINA, P.C., By: Robert E. Brennan, Esq., Attorney for Settlement Funding of New York, LLC, Rochester, New York.
KIMBERLY MARIE SMITH, a/k/a Kimberly M. Knapp, Marathon, New York.
ALLSTATE SETTLEMENT CORPORATION, Allstate Financial, Life and Annuity Claims, Northbrook, Illinois.
Petitioner seeks judicial approval, pursuant to general Obligations Law § 5-1706, for the proposed sale of structured settlement payments that it wants to purchase from Kimberly Smith, a twenty-six year old who lives with her husband, in a house which they own, and two children. Their current income is $2,416 per month, consisting of $1,100 in disability benefits received by Mr. Smith and $1,316 in payments which Ms. Smith receives from the annuity. In summary, Ms. Smith seeks to sell future payments with an aggregate face value of $30,128 — which have a discounted net present value of $25,605 — for the net sum of $10,100 (gross sales price of $12,300, less legal fees of $2,000 and a processing fee of $200). The effective discount rate on the gross sales price would be 19.93%. She proposes to use the proceeds to pay an outstanding credit card bill of $10,000.
Smith began receiving monthly payments of $1,516 in August 2006. The annuity provides that they continue for life. She also received a $25,000 lump sum distribution on August 15, 2009. As a result of the prior transaction, the monthly payments were reduced to $1,316 from December 2010 through November 2017. They are currently scheduled to return to the original amount of $1,516 per month commencing in December 2017. In this transaction, she proposes to sell additional portions of her monthly payments, namely $216 per month from August 2011 through September 2017 and $416 per month from October 2017 through July 2020.
Preliminarily, the court notes this application is made less than five months after it approved a sale by Ms. Smith to petitioner on November 29, 2010. In that prior transaction, the court approved sale of payments with an aggregate face value of $71,800 — which had a discounted net present value of $61,882 — for the net sum of $24,200 (gross sales price of $26,200, less legal fees of $2,000 and a processing fee of $200). The effective discount rate on the gross sales price was 19.49%. Notably, the majority of the sales proceeds — approximately $15,000 — were used to pay a tax lien on her family's home.
In the prior transaction, in addition to selling a portion of the monthly payment, Smith also sold one lump sum payment of $20,000 due on August 15, 2014 (leaving $5,000 to be paid to Smith on that date) and one lump sum payment of $35,000 due on August 15, 2019 (leaving $15,000 to be paid to Smith on that date). The lump sum payments due in 2014 and 2019 are the only remaining lump sum payments due.
The court finds that the petition must be denied because it is insufficient to show that the transaction is in Ms. Smith's best interests ( see Matter of Settlement Funding of NY, L.L.C. (Point Du Jour), 29 Misc 3d 1230 [A], 2010 NY Slip Op 52102[U]). Frequent resort to sale of portions of the structured settlement at a deep discount is not a good use of this valuable asset ( see Matter of 321 Henderson Receivables, L.P. (Lemanski ), 13 Misc 3d 526 [2006]), especially in light of the facts that the proposed transfer would initially decrease her current income by $216 per month, while the proceeds would be used to pay outstanding credit card debt ( see Matter of Imperial Structured Settlements (Angelillo), 24 Misc 3d 1226 [A], 2009 NY Slip Op 51625[U][use of sales proceeds to pay outstanding credit card debt are not in a payee's best interests]).
In addition, the petition is not sufficiently detailed: It does not contain account statements or any other information that would show the nature of the debt — how it was incurred, by whom or for what purpose — or the terms of repayment, including the applicable interest rate or required monthly payment amount ( id.; Matter of Settlement Funding of NY, L.L.C. (Longe), 24 Misc 3d 1201 [A], 2009 NY Slip Op 51212[U]). There has been no showing that she is unable to continue to make the required monthly payments on the outstanding credit card bill, nor that the discount rate on the net sales proceeds is substantially less than the interest rate applicable to the credit card debt ( see Matter of Novation Capital, LLC (D.M.C.), 25 Misc 3d 1212 [A], 2009 NY Slip Op 52041[U]).
Nor can it be said that the terms of the proposed transaction are fair and reasonable. The court acknowledges that it approved the prior transfer at a similar effective discount rate; however, there are two fundamental differences between the prior and proposed transfers in this regard. First, there is an interplay between the best interests standard and the fair and reasonable standard: "The more pressing the need, the more reasonable it may be for a payee to obtain immediate cash at a steep discount rate" ( Matter of 321 Henderson Receivables, L.P. (Lemanski), 13 Misc 3d at 531). In the prior transaction — Smith's first application to sell a portion of the structured settlement — the majority of the proceeds were used to pay a tax lien which jeopardized Smith's home, and additional proceeds were used for improvements to her home. In contrast, as previously noted, the proceeds from the proposed transfer would be used entirely for the legally-disfavored purpose of paying an outstanding credit card bill. Second, the legal and administrative fees of $2,200 represent a much larger proportion of the proceeds of the proposed transfer than they did in the prior transaction (17.9% of the gross sales price in the proposed transfer; 8.3% of the gross sales price in the prior transaction).
In light of the foregoing, the court declines to execute the proposed order to show cause, the petition is denied, and the proceeding is dismissed.
This decision shall constitute the order and judgment of the court.
The following documents were filed with the Clerk of the County of Cortland:
-Order to Show Cause dated April 19, 2011[unsigned]; Petition from Settlement Funding of New York, LLC verified by Robert E. Brennan, Esq., sworn to April 20, 2011; Payee's Declaration in Support of the Transfer of Structured Settlement Payment Rights, sworn to April 15, 2011; Affidavit of Vincent Bucar sworn to March 31, 2011, with attached Exhibits A-D;
-Original Decision, Order and Judgment dated May 4, 2011.