Get Cash Now!!!

I am sure that most, if not all, of us have seen the JG Wentworth commercials advertising, "Get your cash now!"

Did you know that this is a great source for home buyers with structured settlements to raise money for a down payment or closing costs?

A potential borrower who has a structured settlement, or annuity, has two options on how to use the money for qualifying for a loan.  1) Declare it as income (they have to show previous 2 years and continued payments for at least 3 years) 2) Cash some in to turn it into assets.

I used to work with a company that would help people do exactly this.  We would cash in the future payments to raise capital now to qualify for the purchase of the home.  Here is how we did it:

The person had to have a qualified structured settlement resulting from a lawsuit, or in some cases a lottery.  If the annuity was workman's compensation, it is not qualified.  When the lawsuit was finalized or settled, a payment schedule would have been issued.  From this payment schedule, we could see exactly when payments were due and in what amounts.

The payments could have been monthly payments, lump sum payments, or a combination of both.  Depending on the person's needs, the payments could be carved up to fit those needs.  A person could cash in all or a portion.  The way the payments are calculated to a lump sum figure today is by using a time-value-of-money (TVOM) approach.  To put it very simple, the farther out you go, the less your money is worth.  So, a payment due next month, is almost a dollar for dollar figure.  But, a payment 10 years out is worth pennies on the dollar.  The rate at which the TVOM is calculated is also based on the credit rating of the insurance company backing the settlement.

Now here is the catch.  In order for a person to cash in the future payments, the transfer of benefits must be approved by a judge.  Every state has its own laws regulating the transfer of payments.  If your state does not have laws allowing the transfer, you still have hope.  The jurisdiction is based first on the state that the annuitant resides, then it is based on the state where the annuity company is incorporated.  It even goes further than this, but most cases only go two levels.  Because the transaction has to go to court, you are typically looking at about 30-45 days before the money can be paid out.  A lot of courts are requiring a legitimate reason for taking the cash.  In other words, you cannot cash in just because you want to cash in.  Buying a house is one of the reasons that courts will approve the transfer.

If you have a client that has a settlement and is having a hard time coming up with the money, you may want to suggest this way of getting the cash.  My biggest word of advice is to definitely shop this around.  In fact, you may want to contact a broker to do the shopping for you (just like for a mortgage).  They will work to get the best value for your payments.  If you choose to go straight to the lenders, you have to be willing to shop.  Some of the lenders are Novation Capital, JG Wentworth, Stone Street Capital, and Peachtree Funding.