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Chapter: 1600 Assets Program: MSSI, SFP 28

If the loan is not bona fide or not negotiable:

1. The loan agreement is not a countable asset. (Refer to manual passage 1640.0606 et.al. for policy regarding transfer of assets. 2. The goods or money specified in the agreement are an asset if the lender can access it for his or her use. 3. The total payment received (principal and interest) is unearned income in the month of receipt.

Refer to passage 1640.0562 for information on student grants, loans and scholarships. 1640.0561.02 Promissory Notes Prior to 3/1/05 (MSSI, SFP) Promissory notes, loans and mortgages signed before March 1, 2005 are assets for an individual (lender) who has the legal right to sell the loan or owns an interest in the loan that can be converted to cash. The amount included is the outstanding balance shown in payment records unless the individual can provide reliable evidence the value is less.

If any part of a promissory note, loan or mortgage can be converted to cash within 20 days, it is defined as a liquid asset; otherwise, it is a nonliquid asset. If it is determined to be nonliquid it must be evaluated to see if it can be excluded under income producing property policy. Presume that mortgages are nonliquid assets unless the individual states otherwise.

If the note, loan or mortgage is determined to be an asset that portion of any payment received representing payment on the principal is also an asset. The portion of any payment which represents interest on the principal is excluded as unearned income in eligibility determination. Interest is counted as unearned income in patient responsibility calculations.

If the note, loan or mortgage is determined not to be an asset, the total payments received (principal and interest) are unearned income. 1640.0561.03 Promissory Notes Signed On or After 03/1/05 (MSSI, SFP) Promissory notes, loans and mortgages signed on or after March 1, 2005 are included as assets for an individual (lender) who has the legal right to sell the loan or owns an interest in the loan that can be converted to cash. The asset value of the promissory note, loan, or mortgage is the equity value. Equity value is the outstanding balance minus indebtedness. When there is no indebtedness the equity value is the outstanding balance shown in payment records unless the individual can provide evidence that the value is less.

Absent evidence to the contrary, a promissory note, loan, or mortgage is bona fide and negotiable. A bona fide agreement is an agreement that is legally valid and made in good faith. A negotiable agreement is an agreement whereby the ownership of the instrument itself and the whole amount of money expressed on its face can be transferred from one person to another.

If the note, loan or mortgage is determined to be bona fide and negotiable, it is an asset. When payments consist of both principal and interest, the interest portion of the payment is excluded as unearned income in eligibility determination, but is counted as unearned income in patient responsibility calculations. The principal portion of the payment is conversion of an asset, not income.

If the note, loan or mortgage is not bona fide or not negotiable, the instrument cannot be converted to cash (sold) and is not an asset.

If the note, loan or mortgage is determined not to be an asset, the total payments received (principal or interest) is considered unearned income.