SSR 89-5p (Rescinded 2/9/1995)
EFFECTIVE/PUBLICATION DATE: 09/06/89
SSR 89-5p: POLICY INTERPRETATION RULING
Title XVI: Treatment of
Installment Sales Contract in Home Replacement Situations
Purpose: To clarify the policy on exclusions from resources with respect to proceeds from the sale of an excluded home when the sale is accomplished through an installment sales contract.
Citation (Authority): Section 1613(a)(1) of the Social Security Act (42 U.S.C. Section 1382b(a)(1)); 20 CFR Section 416.1212(d).
Pertinent History: Section 1613(a)(1) of the Social Security Act excludes from resources when determining eligibility for supplemental security income (SSI) payments, a home which is an individual's principal place of residence. Pursuant to that provision, 20 CFR 416.1212(d) (the "home replacement" regulation) allows the proceeds from the sale of an excluded home to be excluded from resources to the extent the proceeds are intended to be used and are, in fact, used within 3 months of the date of their receipt to purchase a replacement home which is similarly excluded.
When this regulation was published in 1975, interest rates were low and conventional financial arrangements were the norm. It was reasonable to expect an individual to reinvest fully and immediately all cash proceeds from sale of the former dwelling. Therefore, no special provision was made for the treatment of other types of financing. Because of changes in the economy and the housing market, less conventional arrangements involving proceeds other than cash (such as installment sales contracts) have become more common.
According to regulations at 20 CFR 416.1201, which define resources, an installment sales contract is a resource as long as the SSI claimant owns it and has the legal right to convert it to cash to be used for his support and maintenance. Such a contract could be excluded only if the home replacement regulation were applicable. A strict interpretation of that regulation would require that a contract be converted to cash and used for the purchase of a replacement home within 3 months of receipt of the contract. Such an interpretation, however, would limit the claimant's available options to selling the house for cash (possibly below market value) or liquidating the installment contract at a substantial loss. Either option jeopardizes the opportunity to acquire or maintain a replacement home without losing SSI eligibility, and thereby contravenes the intent of the home exclusion provision of the statute and the home replacement regulation.
On the other hand, the intent of both the statute and the home replacement regulation could be met with a broader interpretation which would permit application of the regulation without requiring sale of the installment contract. That interpretation would focus on the question of when proceeds from the sale of a home are "used to purchase" a replacement home within the meaning of the regulation. The Ruling endorses the conclusion that, when payments against the principal that result from the installment contract for the sale of a home are being reinvested timely in a new home, that contract is being "used to purchase" the new home. (A Ninth Circuit court decision reached a similar conclusion, using a different rationale from what this Ruling follows. See "Further Information" and "Cross Reference" sections.)
Installment Sales Contract
For cases in any State outside the Ninth Circuit, the value of an installment sales contract constitutes a "proceed" which can be excluded from resources under 20 CFR 416.1212(d) if:
- (a) the contract results from the sale of an individual's home as described in 20 CFR 416.1212(a);
- (b) within 3 months of receipt (execution) of the contract, the individual purchases a replacement home which also fits the description in 20 CFR 416.1212(a); and
- (c) all contract-generated sale proceeds are reinvested in the replacement home within 3 months of receipt of such proceeds.
If the individual does not purchase a replacement home within 3 months of receipt of the installment sales contract, the value of the contract is a countable resource effective with the month following the month of receipt. If the individual purchases a replacement home after expiration of the 3-month period, the value is an excluded resource effective with the month following the month of purchase of the replacement home provided that contract-generated proceeds are fully and timely reinvested as explained below.
In addition to the value of the sales contract itself, any money proceeds of the sale of the former home are excluded resources if they are used within 3 months of receipt to make payment on purchase of the replacement home. Such proceeds, which consist of the downpayment and that portion of any installment amount constituting payment against the principal, represent a conversion of a resource as described in 20 CFR 416.1207(e). If the proceeds are not reinvested fully and timely (within 3 months of receipt) in a replacement home, as of the first moment of the month following receipt of the payment, the individual's countable resources will include:
- the value of the installment sales contract; and
- that portion of the proceeds, retained by the individual, was not timely reinvested.
The installment sales contract remains a countable resource until the first moment of the month following the receipt of proceeds that are fully and timely reinvested in the replacement home. However, any of the previously received proceeds that were not reinvested timely, to the extent such monies are retained, remain countable resources.
If interest is received in addition to the proceeds from the sale of an excluded home, the interest payments do not represent conversion of a resource. The interest is income under the provisions of section 1612(a)(2)(F) of the Social Security Act and regulations at 20 CFR 416.1102, 416.1120, and 416.1121(c). Any interest payment, to the extent retained, becomes a countable resource the first moment of the month following the month of receipt.
Effective Date: This policy is effective upon publication of this ruling.
Further Information: A Ninth Circuit Court of Appeals decision in the case of Hart v. Bowen, 799 F.2d 597 (9th Cir. 1986), resulted in acquiescence ruling AR 87-3(9). The Hart court found that the current market value of an installment sales contract resulting from the sale of an individual's excluded home should be excluded from countable resources provided the payments generated by the contract were reinvested timely in another excluded home. The result of the decision is basically the same as that expressed in this Ruling. However, we are not adopting the acquiescence ruling nationally because of the court's rationale that the installment contract does not represent the actual proceeds of the sale but merely the right to receive proceeds. Since this rationale would consider an item of value (the contract) not to be a resource, it is contrary to the regulatory definition of resources.
Cross References: Program Operations Manual System sections SI 01130.430-.431; Acquiescence Ruling No. AR 87-3(9), Hart v. Bowen.