TN 8 (06-18)

A. PS 17-144 Validity of verbal contracts for the transfer of real property for determining resources for Supplemental Security Income

Date: August 24, 2017

1. Syllabus

This Regional Chief Counsel (RCC) opinion examines whether the verbal contracts involved in the transfer of real property between a Supplemental Security Income (SSI) recipient and her family members were valid in light of Tennessee’s statute of frauds law. The RCC concludes that the State’s statute of frauds did not render the verbal contracts void. Therefore, the real property transfer was valid for the purposes of determining the SSI recipient’s resources.

The RCC also notes that because the property was not sold on the open market, the agency could obtain a current market value (CMV) estimate to make sure it was not sold for less than CMV (which could subject the recipient to a period of SSI ineligibility).

2. Opinion

QUESTION

Whether the verbal contracts for the transfer of real property in the State of Tennessee were valid in light of the statute of frauds for determining a Supplemental Security Income (SSI) recipient’s resources.

OPINION

The statute of frauds under Tennessee law did not render the verbal contracts involving the transfer of real property void for determining the SSI recipient’s resources.

BACKGROUND

Based on the information provided, K~ (Recipient), began receiving SSI on June XX, 2015. On September XX, 2016, the Social Security Administration (SSA) issued Recipient a notice informing her that she was overpaid SSI in the amount of $3,679.00 from November 1, 2015, to September 1, 2016, because she was found to have excess resources due to her having given away or sold property for less than it was worth. Recipient’s request for reconsideration was denied and she requested a hearing before an administrative law judge (ALJ).

According to the ALJ’s decision, Recipient and her grandmother testified that the grandmother had conveyed to Recipient approximately six acres of real property by deed in 2013 accompanied by a verbal understanding that Recipient would hold approximately three acres for Recipient’s brother, who was a minor and sick at that time, and later give the property to him. Recipient testified that when her brother became an adult, she conveyed by deed the approximately three acres of land she had held for him, but she did not record the deed. Recipient testified that she later conveyed by deed approximately two acres of her remaining property to her brother as collateral for a $2,000 loan from him to allow Recipient to purchase a car. A deed for the transfer of both property parcels was then executed and, according to Recipient’s testimony, she then owned only one acre of land on which her house was situated.

Recipient’s brother wrote in a statement that he took out a $2,000 loan on October XX, 2015, to allow Recipient to purchase a vehicle in exchange for 2.62 acres of land, which according to documentation was transferred to him on April XX, 2016. In another writing, Recipient’s brother stated that he purchased a vehicle for Recipient. Recipient executed a warranty deed to her brother seemingly for the property at issue on May 3, 2016. The information provided also includes Real Estate Assessment Data from the State of Tennessee Comptroller of the Treasury indicating that the 2015 appraisal value of a 4.62-acre tract of land owned by Recipient was $16,800 and the 2015 appraisal value of a 1.00-acre tract of land owned by Recipient was $8,100. The ALJ found that based on the information and testimony, Recipient was not over the resource limit due to having given away or selling property for less than its worth and there was no overpayment.

DISCUSSION

SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Social Security Act (Act) §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2017). In relevant part, “resources” include real property that an individual owns and could convert to cash to use for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “The general expectation is that individuals or couples whose resources exceed the applicable limit will use the excess to meet their needs before becoming eligible for SSI benefits.” Program Operations Manual System (POMS) SI 01110.001.A. However, not everything a person owns is a resource and not all resources count against the statutory limit. See POMS SI 01110.001.B.2. The Act specifically excludes from resources an SSI recipient’s home and its land. See Act § 1613(a)(1); 20 C.F.R. § 416.1212(b); POMS SI 01130.100.B.1. For real property to qualify as a recipient’s excluded home, the recipient must have an ownership interest in the property and use it as his or her principal place of residence. See 20 C.F.R. § 416.1212(a); POMS SI 01130.100.A. The information provided about the property at issue – the approximately three acres of land Recipient purportedly held for Recipient’s brother and the approximately two acres of land that she purportedly transferred to him as collateral for a $2,000 loan – does not meet the definition of an excluded home under the Act because that property was not and is not Recipient’s principal residence.

Real property that a recipient owns, but that does not otherwise meet the definition of an excluded home under the Act, is considered “non-home real property” and is a potential resource for SSI purposes. See 20 C.F.R. § 416.1201(a); POMS SI 01140.100.A-B. Non-home real property is assumed to be a nonliquid asset. See 20 C.F.R. § 416.1201(c)(1); POMS SI 01110.310.B.1. When a recipient alleges that there is an encumbrance against non-home real property, and the encumbrance could affect SSI eligibility, the property’s equity value determines whether it is a resource for SSI purposes. See POMS SI 01140.100.B, .D.1; see also 20 C.F.R. § 416.1201(c)(1) (stating: “Nonliquid resources are evaluated according to their equity value except as otherwise provided”).

Unless otherwise excluded, SSA counts as a resource the current market value (CMV) of non-home real property (or the portion of it) that belongs to the claimant, recipient, or deemor. See POMS SI 01140.100.B. Absent evidence to the contrary, SSA assumes that a recipient can sell the property at its estimated CMV. See id. The CMV of a resource is the going price for which it can reasonably be expected to sell on the open market in the particular geographic area involved. See POMS SI 01110.400.A.1.a; see also 20 C.F.R. § 416.1201(c)(2) (defining equity value of an item as the price the item could reasonably be expected to sell for on the open market in the particular geographic area involved, minus any encumbrances). SSA generally assumes, absent evidence to the contrary, that each owner of a shared property owns only his or her fractional interest in the property. See POMS SI 01110.510.D.1. SSA divides the total value of the property among all of the owners in direct proportion to the ownership share held by each. See id. If a recipient transfers a resource for less than fair market value, the recipient may be subject to a period of ineligibility for SSI. See Act § 1613(b)(1); 20 C.F.R. § 416.1244(b); POMS SI 01150.005.A.

Because Recipient resides in Tennessee, the property at issue is located in Tennessee, and the verbal contracts at issue were entered in Tennessee, we apply Tennessee law to evaluate the validity of the verbal contracts. See Blackwell v. Sky High Sports Nashville Operations , LLC,No. M. 2016-00447-COA-R9-CV, 2017 WL 83182, at *5 (Tenn. Ct. App. Jan. 9, 2017) (stating that, absent a choice of law provision in a contract, Tennessee generally presumes the contract is governed by the law of the jurisdiction in which it was executed absent a contrary intent). In Tennessee, land conveyances generally occur in a two-step process: execution of a land sale contract followed by execution and delivery of a deed. See Hughes v. New Life Dev. Corp., 387 S.W. 3d 453, 466 (Tenn. 2012) (quoting In re Gee, 166 B.R. 314, 317 (Bankr. M.D. Tenn. 1993)); see also Cox v. McCartney, 236 S.W.2d 736, 738 (Tenn. 1950) (“An undelivered deed passes no title and is of no effect.”). The relevant part of the statute of frauds in Tennessee provides that no action shall be brought upon any contract for the sale of land “unless the promise or agreement, upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person lawfully authorized by such party.” Tenn. Code Ann. § 29-2-101(a) (West 2017); see McKinnis v. Hammons, No. E2013-02733-COA-R3-CV, 2014 WL 5487789, at *4 (Tenn. Ct. App. Oct. 30, 2014) (stating that the statute of frauds generally prohibits an action alleging an oral agreement to convey land where there is no writing or memorandum evidencing such a contract). “The purpose of the statute of frauds is to reduce contracts to a certainty, in order to avoid perjury on the one hand and fraud on the other.” Baliles v. Cities Serv. Co., 578 S.W. 2d 621, 623 (Tenn. 1979) (internal quotation marks omitted).

Even in light of the statute of frauds, however, a verbal agreement for the sale of land is not void; it is only voidable at the election of either party, it is not enforceable by one against the will of the other, and it may be specifically executed against either party if he or she fails or refuses to rely upon the statute. See Waddle v. Elrod, 367 S.W. 3d 217, 223 (Tenn. 2012); Bailey v. Henry, 143 S.W. 1124, 1127 (Tenn. 1912). If the parties themselves choose to execute the contract, third parties cannot object on the basis of the statute of frauds. See Waddle, 367 S.W. 3d at 223. Additionally, the statute of frauds does not require any specific form of written contract, only a written memorandum or note evidencing the parties’ agreement. See id. at 226. Writings executed after the verbal agreement regarding a contract for real property can suffice to satisfy the statute of frauds. See Cobble v. Langford, 230 S.W. 2d 194, 196-98 (Tenn. 1950). Furthermore, the memorandum may be signed at any time after the contract and before suit is brought to enforce it. See Watson v. McCabe, 381 F. Supp. 1124, 1129 (M.D. Tenn. 1974); Huffine v. McCampbell, 257 S.W. 80, 83-84 (Tenn. 1923).

Even if the verbal contracts at issue in this case resulting in the transfer of the property to Recipient’s brother do not meet the requirements of the statute of frauds, none of the parties to the transactions have challenged them and SSA, as a third party, cannot bring such a challenge. See Waddle, 367 S.W. 3d at 223. Although the agreement between Recipient and her grandmother requiring Recipient to hold a portion of the property for her brother and then transfer the property to him when he became an adult was not written, Recipient has executed the terms of that agreement by transferring the property to her brother. See Waddle, 367 S.W. 3d at 223 (holding if the parties execute the contract, third parties cannot object). In addition, because Recipient was restricted from using the property she first transferred to her brother based on her agreement with her grandmother, that portion of the property she initially transferred should not be considered a resource to Recipient. See POMS SI 01110.100.B.1; see also POMS SI 01110.510.D.1 (stating SSA generally assumes, absent evidence to the contrary, that each owner of a shared property owns only his or her fractional interest in the property).

Additionally, although the second agreement between Recipient and her brother was not initially written, it appears to have been written at a later time through the deed transferring the property to Recipient’s brother and her brother’s subsequent writings explaining this second exchange of the land was for a loan on a vehicle costing $2,000. See Cobble, 230 S.W. 2d at 196-98; Watson, 381 F. Supp. at 1129. Thus, it does not appear that the statute of frauds applies to this second transaction. See Watson, 381 F. Supp. at 1129 (holding memorandum of a contract may be signed at any time after the contract and before an enforcement suit is brought). Because SSA has no standing to challenge the transactions, none of the parties have challenged the transactions, the parties have already performed the transactions, and the transaction between Recipient and her brother was subsequently written down, the statute of frauds does not invalidate agreements regarding the transfer of Recipient’s non-home real property.

Although the statute of frauds does not invalidate the transfer of Recipient’s non-home real property, as discussed above, if a recipient transfers a resource for less than fair market value, the recipient may be subject to a period of ineligibility for SSI. See Act § 1613(b)(1); 20 C.F.R. § 416.1244(b); POMS SI 01150.005.A. If property was not sold on the open market (e.g., it was sold to a friend or relative), the sale price is not assumed to be the fair market value. See 20 C.F.R. § 416.1244(b); POMS SI 01150.005.C.4.a. In such circumstances, SSA should obtain a CMV estimate from a knowledgeable third party. See POMS SI 01150.005.D.6; see also POMS SI 01140.100.C.2 (stating that if SSA cannot use the claimant’s allegation to establish CMV, and no other evidence is available, request that the claimant obtain an estimate from a knowledgeable source). Here, the transfer of the property at issue was not on the open market and was effectuated to Recipient’s brother. Therefore, SSA does not have to rely on the purported sale price agreement between Recipient and her brother to determine the fair market value and CMV of Recipient’s non-home real property and can obtain an estimate from a knowledgeable third party to evaluate the CMV if it so chooses.

CONCLUSION

The statute of frauds does not apply to invalidate the real property transactions at issue in this matter. However, SSA could obtain an estimate from a knowledgeable third party for the value of the second parcel of land transferred to Recipient’s brother if it chooses because that transfer was not a sale executed on the open market.