Mr. Knight did the following with his money:

• $400,000 to father
• $100,000 to mother



• $100,000 to friends
• built primary residence in New York
• built secondary home in Pennsylvania
• started a soul food restaurant in the Bronx, NY

Mr. Knight plans on doing the following with the money he would have received from the sale of his structured settlement:

• renovate his Orange County (NY) home to be sold
• renovate his restaurant to make it more profitable
• finish his secondary home (PA) to move his family into (5 children)
• payoff other debt ($25k truck, ect. ect…)

Why would Mr. Knight sell his New York residence, move to Pennsylvania, but not sell his New York soul food business?

Factoring Transaction

Novation Capital was offering Mr. Knight $100,000 for the rights to $1078.11 of the total $1978.11 for a period of 19+ years (March 2028). The effective annual rate of this transaction was 12.21% which is a high rate for this particular case.

Settlement Quotes offer to Mr. Knight would have been in the range of $118,000 to $120,000. The profit margin for Novation Capital on this particular case was in the range of $20,000 to $24,000.

It is important to point out that this particular case was not denied because of a high discount rate, but because Mr. Knight squandered the $1.6 million he received up front, all within a 2 year period. How long would the $100,000 have lasted?

Source:

• Structured Settlements 4 Real
• Lois Law

There are many reasons to sell a structured settlement including:

• college education
• medical expenses
• bills
• starting a business
• buying a home
• paying off a mortgage

It is important to take into account the welfare and well being of any dependents that may be affected by the overall outcome of a factoring transaction. Cashing out a structured settlement eliminates the tax-free guaranteed payment stream that you and your family may receive on a monthly, annual, or semi-annual basis.

With the diminishing state of the stock market and the collapsing housing market, it would be a wise investment to keep the guaranteed payment stream of a structured settlement in tact. Experts predict that the housing market will continue to spiral out of control for the next few years. Creating an investment portfolio from the sale of a structured settlement could create disaster for you and your family.

In this author’s opinion, a smart investment can mean not investing at all. Many annuitants that contact Settlement Quotes about selling their structured settlement, end up only selling a portion of their future settlement payments. Settlement Quotes has observed that only 10% of all annuitants that sell the rights to their future payments need to sell all of their payments. This type of transaction (split payment) benefits the annuitant because they are able to keep a portion of their guaranteed payment, while also taking care of any financial obligations that they may have.

By all means receiving an IPA is usually in the best interest of the seller and is recommended for all individuals selling the rights to their payments.

What States require an IPA?

• Alaska
• Delaware
• Louisiana
• Maine
• Maryland
• Minnesota
• Missouri
• North Carolina
• Ohio

Note- In the state of California, if the annuitant would like to obtain an IPA, then the factoring company has the obligation to reimburse the seller up to $1,500.

Who can provide independent professional advice?

• attorney
• accountant
• financial planner

What is the cost of an IPA?

An IPA costs an average of $500, but there are a few tips that we can provide to help you save money. It is a good idea to check with your local bank to see if they can provide an IPA free of cost.

Why doesn’t the factoring company pay for this?

As stated in the title, an IPA is “Independent” professional advice. If the factoring company (buyer) was to pay for this service, then the professional advice would not be independent. There are certain cases that payment arrangements can be made to help out the annuitant (seller), so the transaction can be completed.

There are a few factoring companies in the industry that pay for their client’s IPA, which in this author’s opinion is not in the best interest of the client. The professional advice that the client (seller) is seeking can and is most of the time compromised when an outside party is paying for the service.

Why can’t every transaction see rates under 10%?

There are several different types and payment arrangements that are impossible to receive a discount rate of under 10%. Here are a few examples of cases that cannot receive discount rates under 10%:

• Life contingent payment streams (most cases)
• A single lump sum payment within a few years of the present date (i.e. $50k in 2010)
• A small number of accumulated future payments close to the present date
• A small accumulated future value

Can I still receive a great deal even though the rate is above 10%?

The answer is yes. Even though it is impossible for some cases to receive a rate of 10% or less, it is still possible to receive a great deal.

Explanation

Lets use an example to show this scenario. Bob would like to sell the rights to his single $50,000 payment in August of 2010. He receives a quote of $38,000. Is this a good deal? Even though the rate of this transaction is 13.2%, it is still a very good deal. Why is the rate 13.2%? At 8% the transaction would provide us a quote of $42,000, but every factoring transaction requires court fee’s of $3,500 to $4,000, netting Bob $38,000.

Even though $38,000 may seem like a good quote, in the state of North Carolina this transaction would be denied due to a state law requiring every transaction to have a rate under prime plus 7 (currently 12%). This was a scenario of an individual who came to Settlement Quotes interested in selling her payment. This woman’s house is going to foreclose and she needs a way to pay it off. Unfortunately, there isn’t anything we can do.

Are the structured settlement recipients in the state of North Carolina being overprotected?

In this author’s opinion a 16% average effective discount rate for all structured settlement factoring transactions completed throughout the states over the past 12 months is most likely fairly accurate. This author arrived upon this figure for the following reasons

1. Transactions which have lump sum payments close to the current date always retain higher discount rates due to the fees associated with a structured settlement factoring transaction.
2. Uncompetitive transactions retain higher rates due to the nature of most larger companies.
3. The unwillingness to shop around by most annuitants and the low ball and readjust pricing models that most companies use to price transactions equates to higher effective discount rates.

In this author’s opinion, as more consumers become educated about the industry, the average effective discount rate will continue to decrease allowing for the secondary market to shed a positive light on structured settlements in general.

The comparison of discount rates to credit card rates is a bit absurd and seems to be a way for Mr. Ostrov to justify why his or other structured settlement factoring companies charge such high rates. Any company in the industry has the ability to provide rates under 10%. Here is another list of reasons this comparison is absurd:

• Credit card interest rates are determined by an individual’s personal credit score (and other factors)
• Discount rates in factoring transactions are determined by a companies financial rating (most life companies retaining a A to AAA rating)

Another point was raised by John Darer in this post regarding companies such as Executive Life of New York, Monarch Life, Reliance, and Confederation Life. There is a higher risk for investors and funding sources to purchase rights to settlement payments from these companies. With the higher risk comes a limited amount of investors which equates to a lower supply/ demand ratio. With the lowered demand for these payments comes higher rates which in return effects the overall average effective discount rate.

If a company usually provides rates in the 16% range for a payment stream from Metropolitan Life, Pacific Life, or New York Life then the rates charged for an Executive Life deal are increased by a few percent due to the complexity and risk of the transaction.

Settlement Quotes has completed 6 Executive Life of New York transactions in the last seven months with an average discount rate of just under 12%. This is an increase of 3% from our average discount rate of 9.18%. This increase is due to the limited number of investors interested in these transactions. Most structured settlement factoring companies are not interested in these types of cases and end up canceling them before the court hearing.

If you have any further questions on these topics, feel free to comment and we will do our best to answer asap. If you would like to find out a discount rate of a structured settlement factoring transaction, feel free to use our structured settlement calculators.

Google and the other search engines are providing warnings at this time when Patriot Settlement’s website shows up in the natural rankings, but Google is not currently showing a warning for Patriot Settlement’s Pay Per Click program which serves the same website as the natural rankings. This virus will most likely effect more than 300 individual’s computers today alone.

Update: Patriot Settlement has fixed the virus and is awaiting Google and the other search engines to update the changes.

It was reported that JG Wentworth was purchasing $102,948.57 of future payments for a net amount of $10,500. DFM states that this transaction has a rate of 10.2% which is false. Structured settlement factoring transactions are priced using discount rates. The rate of this transaction was 8.78%, which is actually a good rate. Even though this transaction had a good discount rate, the factoring transaction would not be in the best interest of the annuitant due to the reasoning for the transaction.

Settlement Quotes would have recommended that this individual try other resources to purchase a vehicle. Cashing out a structured settlement to purchase a vehicle is most of the time not in the best interest of an individual, especially with the rising costs of energy.

In the future, DealFlow Media needs to use correct verbiage when reporting structured settlement factoring cases. Settlement Quotes has built several calculators that are able to calculate the discount rate of all types of factoring transactions. JG Wentworth or any other company would not have tried to factor a transaction with a discount rate of 90%, which would have left the annuitant with a penny.

Other DealFlow Media Inaccuracies.

How does this effect a structured settlement factoring transaction?

Structured settlement factoring transactions are priced using many variables to determine the overall risk involved in the transaction (i.e. Insurance company rating–A- AAA, length of payment stream, and guaranteed vs. non-guaranteed payments). If a structured settlement factoring company purchases a life contingent payment stream and the annuitant dies a year later, the factoring company will never receive any money.

Life contingent payment streams are not impossible to accomplish, but are more expensive. Depending upon the annuitants age, health, driving record, medications, and other information a life insurance policy can be purchased with the factoring company as the beneficiary. The purpose of the life insurance policy is to ensure the factoring company that they will either receive all the life contingent payments that were originally purchased, or upon death of the annuitant, the factoring company will receive a payout from the life insurance policy.

Not only are non-guaranteed payments more expensive to sell, but the transactions take much longer to fund as well. If you would like more information on non-guaranteed payments vs. guaranteed payments please comment.

Imagine that you have a structured settlement and you have been dealt a situation that calls for you to liquidate part of your future payments for a lump sum of money in 6- 8 weeks. You decide to go on the internet and complete a few contact forms to receive factoring quotes. Over the next few hours the companies start calling to provide quotes on your particular payment stream. You would think now that you have received your quotes you can finally make a decision whether this will be in your best interest, but many times this is NOT the case.

The next day you go about your normal day: dropping the kids off at school, going to work, picking up the kids from daycare, and finally heading home to the rest of your family. When you return to your house, you will find that your answering machine has reached its limit for excessive number of messages. The companies that provided quotes on your structured settlement payment stream from the day before have called you back and want a decision on whether you will accept their offer. This process will continue for weeks following the initial quote process.

Why do companies call repetitively?

The tendency and normality of certain companies in the structured settlement factoring industry is to low-ball the the initial quote and price match any higher quotes you have received. Lets say company A provides a quote for $130k and company B provides a quote for $133k, company A wants to know that they have been beat and will price match in order to stay in the running. This process can go on for weeks depending on the severity of the initial low-ball quote. In order for these companies to stay on top of the highest quote they need to call up to 10 times a day to price match your best quote, when the truth to the matter is that you should have received a legitimate quote of $180k right from the start.

Why is it worth a company’s time to call several times a day for weeks on end?

With the tactic of low-ball/ price match, it can take several weeks to receive a legitimate quote of $180k. If an annuitant decides to accept a quote of $150k instead of $180k, the difference in price is profit for the factoring company.

Settlement Quotes does not believe in this type of sales tactic and does not call our clients harassing them to accept an offer. WE LET OUR PRICING SPEAK FOR ITSELF!

In principal this may seem like a great idea, but over the long run this bill is taking money out of the annuitant’s hands. Every appointed guardian ad litem costs anywhere from $1,000- $2,000, payed for by the factoring company processing the transaction. This cost is deducted directly from the structured settlement recipient and is essentially a life altering amount of money.

With the deduction of funds going to the annuitant, the discount rate of the transaction sky rockets into territory where the transaction will most likely be denied in front of a judge. Lets use an example to demonstrate this scenario:

Suzy is receiving a $25,000 lump sum payment on 6/1/2010. With no court fee’s a company can complete this transaction at a discount rate of 7.6%- 8% which turns out to net the annuitant between $21k- $22k. With the reduction of the normal court fee’s of $3,500- $4,000, the net amount received by the annuitant is reduced to $17k- $18k (18% discount rate). With the appointment of the guardian ad litem, the costs of this transaction would make this payment stream too expensive to factor. The discount rate of this transaction exceeds 23% with no profits being earned by the factoring company.

This author believes that legislation is a good step forward for the structured settlement factoring industry, but there is a proper way to go about these measures. During the next round of legislation, Mr. Walters is expected to put a rate cap on factoring transactions in the state of West Virginia. With the past two bills combined, Mr. Walters will be eliminating the opportunity that many residents of West Virginia will have to factor future structured settlement payments.