County of San Diego Health and Human Services Agency HHSA MediCal Program Guide Loans Number Page 9101 1 of 4 Revision Date February 1 2021 BackgroundThis section provides instructions for evaluating loans as property PurposeThis section is updated for sunset review and information on the treatment of Lines of Credit has been added PolicyA Exemption CriteriaLoans are exempt and not counted in the property reserve in any month in which they are either Exempt as income per MPG 100203 Counted as income in the month of receipt because they do not have to be repaid B Loans Requiring RepaymentLoans which must be repaid and are not exempt per the criteria above are included in the property reserve beginning with the month of receipt Use the following information on the various loan types to determine if a loan must be repaid 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 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 they receive future income or ii The borrowers express intent to repay the loan by pledging real or personal property or anticipated income as collateral County of San Diego Health and Human Services Agency HHSA MediCal Program Guide Loans Number Page 9101 2 of 4 Home Equity Conversion HEC Plans HEC Plans allow homeowners to convert the equity in their homes into 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 A summary of the most common HEC Plans is provided below There are many variations of these plans so each plan must be examined on an individual basis A copy of the beneficiarys HEC Plan should be imaged in the case 1 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 2 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 3 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 for 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 Example Monthly note payment is 800 The rental fee is 500 The interest portion is 15 County of San Diego Health and Human Services Agency HHSA MediCal Program Guide Loans Number Page 9101 3 of 4 800 minus 500 minus 15 285 cash on hand 4 Time Sale In a Time Sale an elderly homeowner contracts to sell their home at death In the meantime they retain 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 their lifetime Consider these proceeds property conversion whether paid in cash or inkind Line of Credit Line of Credit plans allow a property owner to obtain a certain amount of their current equity The unused line of credit is not available property since it is still equity in the property and has not yet been separated and converted to cash Cash proceeds can be withdrawn from the equity all at once or in smaller amounts and would be considered property in the month received If a line of credit exists against a principal residence the principal residence remains exempt and the exempt equity would include any amount of the line of credit that has not been withdrawn Example Principal Residence Market Value 500000 exempt Line of Credit 250000 remains exempt until withdrawn Withdrawn Cash Proceeds 100000 property in month received Unused Line of Credit 150000 remains equity in exempt principal residence If a line of credit exists against nonexempt property determine the net market value of the property used as security as well as the amount of proceeds drawn out of the equity and what was done with those proceeds Example Other Real Property Market Value 300000 otherwise countable property as not utilized Line of Credit 300000 remains equity in the countable Other Real Property until withdrawn Withdrawal 300000 becomes an Encumbrance of Record and was spent on privately paying for LTC prior to application for MediCal 0 Net Market Value of Other Real Property remaining 300000 Market Value 300000 Line of Credit Withdrawn 0 Net Market Value of Other Real Property 0 countable property remaining on proceeds received as it was spent on LTC 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 County of San Diego Health and Human Services Agency HHSA MediCal Program Guide Loans Number Page 9101 4 of 4 Verifications must be imaged Procedure Follow the policies above to determine if a loan is counted in the MediCal property reserve References MEPM 9D CCR 50169 and 50483 MEDIL I 2034 Sunset Date This policy will be reviewed for continuance by January 31 2024 Approval for Release Rick Wanne Director Eligibility Operations