County of San Diego Health and Human Services Agency HHSA MediCal Program Guide Loans Number Page 9101 1 of 3 Revision Date January 1 2020 Background This section provides instructions for evaluating loans as property Purpose This section is updated to the current format There are no policy or procedure changes Policy A Exemption Criteria Loans are exempt and not counted in the property reserve in any month in which they are either Exempt as income per MPG 100203Aj Counted as income in the month of receipt because they do not have to be repaid B Loans Requiring Repayment Loans which must be repaid and are not exempt or counted as income are included in the property reserve beginning with the month of receipt C Determination of Repayment Use the following criteria to determine if a loan must be repaid 1 Commercial Loans Commercial loans are usually negotiated between two or more individuals and financial institutions such as banks or finance companies and involve formal contracts These formal contracts usually specify the borrowers promise to pay a designated amount at a specified time upon demand When only a portion of the loan must be repaid for example certain nonexempt student loans only the portion that must be repaid is considered property in the month of receipt The remaining portion is considered income and is apportioned in accordance with MPG 104 2 Personal Loans Personal loans are negotiated between private parties and are often informal They may involve verbal or written agreements To be considered property for MediCal a personal loan must be based on an agreement which contains the following components a The borrowers acknowledgement of an obligation to repay with or without interest and b Either i A timetable and plan for repayment the borrower plans to repay the loan when heshe receives future income ii The borrowers express intent to repay the loan by pledging real or personal property or anticipated income as collateral the loan will be repaid as soon as Unemployment Insurance or employment begins County of San Diego Health and Human Services Agency HHSA MediCal Program Guide Loans Number Page 9101 2 of 3 3 Home Equity Conversion HEC Plans HEC Plans allow homeowners age 65 and over to convert the equity in their homes into cash without being forced to leave the home This enables elderly homeowners to increase their available monthly cash Since these plans are loans requiring repayment the proceeds are considered property Some HEC Plans may provide that part of the purchase price of the home be used to purchase an annuity payable to the homeowners for life The payments from these are considered unearned income It is expected that these will be rare because the proceeds are counted as property for MediCal eligibility purposes A summary of the most common HEC Plans is provided in the following However there are endless variations of these plans and each plan must be examined on an individual basis Image a copy of the individuals HEC Plan in the case 4 Reverse Annuity Mortgage RAM RAM HEC Plans allow a homeowner to borrow through a formal mortgage contract 60 to 80 percent of the appraised value of the home equity for a specified period The homeowner receives funds periodically for the duration of the lending period This type of loan must be repaid 5 Deferred Payment Loan DPL The DPL is like a RAM but differs in the following ways Rather than being used as supplemental monthly income the proceeds from the DPL are used for some specific purpose such as payment of real estate taxes home repairs or major personal expenses The DPL is received from the lender in one lump sum rather than in periodic payments The DPL is secured by placing a lien on the property which must be satisfied to sell the property The amount of the loan may be recovered from the estate upon the death of the homeowner 6 SaleLeaseback Saleleaseback is an arrangement where an investor buyer purchases the home from an elderly person seller and as part of the sales agreement leases the home back to the seller The lease allows the seller to live in the home either for life or until a specified time The buyer usually pays the seller a down payment and monthly installments on an interestbearing promissory note The interest on the note is considered unearned income in the month of receipt If the note can be sold it is counted as property under MPG 99 The buyer is responsible for payment of real estate taxes major maintenance costs and casualty insurance The value of these items is not considered inkind income because the seller is paying rent to the buyer The seller pays the buyer rent If the payments on the note are greater than the rental fee the difference minus the interest portion of the monthly payment will be treated as cash on hand and included in the property reserve County of San Diego Health and Human Services Agency HHSA MediCal Program Guide Loans Number Page 9101 3 of 3 Example Monthly note payment is 800 The rental fee is 500 The interest portion is 15 800 500 15 285 cash on hand 7 Time Sale In a Time Sale HEC Plan an elderly homeowner contracts to sell hisher home at death In the meantime heshe retains title and right of continued residence in the home In effect under this arrangement the homeowner retains a life estate The buyer usually agrees to pay property insurance property taxes and certain maintenance and repair costs plus a monthly cash amount to the homeowner during hisher lifetime Consider these proceeds property conversion whether paid in cash or inkind D Verification of Loans View the documentation to determine if a loan requires repayment Verifications are Written contracts The actual formal contract that indicates the repayment arrangement and method of payment Verbal contracts A statement from the borrower and the lender that documents the conditions of repayment existed when the loan occurred Image a copy of the verification in the case Procedure Follow the policies above to determine if a loan is counted in the MediCal property reserve Program Impacts None References MEPM 9D CCR 50169 and 50483 Sunset Date This policy will be reviewed for continuance by December 31 2019 Approval for Release Rick Wanne Director Eligibility Operations