As a Structured Settlement Expert we have to keep on all news pertaining to our field, this is a Wall Street Journal article we found regarding Pre Issued Annuities, also known as Secondary Market Annuities, Pre Owned Annuities, or most recently; Recycled Annuities. After reading this article you may find that this is something you are interested in, I must advise you that proceeding with this type of investment should only be done with an Expert in the Structured Settlement Transfer Industry.
Another Can’t-Miss Deal? – WSJ – November 23, 2012, 9:00 AM
By Allan S. Roth
I purchased a so-called structured-settlement annuity earlier this year, in large part to see if I could help my clients find some relatively safe higher income. This is a settlement in which an injured party receives a monthly payment from an insurance company as compensation for damages, typically an injury or death of a loved one. Often, the party entitled to these monthly payments wants the cash now and can sell their rights to someone else.
I first learned about these annuities in Jason Zweig’s Intelligent Investor column, “Another Can’t-Miss Deal That Can Miss Spectacularly,” which ran on July 23, 2010. Though the title seemed ominous, the opportunity seemed quite real: A judge approves an order whereby the seller receives the cash and orders the insurance company to assign the future cash payments to the buyer. Zweig notes the key risks are lack of liquidity – and the possibility, discovered only after the fact, that the seller had no rights to sell the cash stream.
There are two intermediaries involved in these annuities. One is the factoring company that finds the seller, and one is the broker that finds the buyer (in this case, me).
I didn’t exactly rush into the process. After two years’ worth of consideration, I finally agreed to purchase a cash stream from MetLife of Connecticut that yielded 5.5% annually for about $90,000. What I liked about this cash stream was that, while the payments were over a very long period (24 years), there was a large lump-sum payment after about five years. At that point, more than 80% of my cash outlay would be returned, leaving a smaller amount at risk for high inflation.
The court hearing approving the purchase was only days away, allowing me to negotiate a more attractive rate than the 5.25% originally offered. In perusing the paperwork, I noted the factoring company attested it had done due diligence to assure the cash stream had no claims, or “liens,” against it. Before long I had a copy of a court order with my name on it and, based on assurances that all was in order, I sold some of my holdings to fund the purchase.
As it happened, the state of Alabama actually had a very large tax lien on the cash stream. Holy cow, my name was on a court order signed by a judge obligating me to buy this cash flow. Would I be in contempt of court if I didn’t go through with it?
After a couple of months sweating it out, the seller finally cured the lien and all seemed back on track. I wired a bit more than half of the purchase price. To make up for the delay, the broker agreed to lower the price so that I would receive a 5.625% yield. I was given hundreds of pages of closing documents to review. Boy, was I glad I actually read them, because even though the documents were supposedly approved by the broker’s attorney, they were filled with errors. My name was misspelled, dates of payments were wrong, and nothing from MetLife showed the cash amounts I was purchasing.
I later found out I had no rights to have MetLife tell me what I was purchasing since I wasn’t the original owner. I was, however, able to do some math from the due diligence pile of papers that led me to believe I was only getting about half the cash I bargained for.
The broker told me not to worry and that I should rely on the amounts of the court order. He, of course, wanted immediate funding and closing. Over my dead body, I thought. If I need to hire attorneys to get MetLife to comply, I lose big time even if I prevail legally.
MetLife was unresponsive as I continued to refuse to close the deal in spite of pressure from the broker. I faxed two letters to the MetLife general counsel, noting that all parties lost if MetLife didn’t correct the discrepancies soon. Eventually, MetLife responded, noted the discrepancies and sent me a letter with the dates and amounts I had bargained for.
So after three excruciating months and dozens of hours of due diligence, I bought my first structured settlement annuity, and the whole process left a bad taste in my mouth. The work by the factoring company, the broker and the external attorney was sloppy at best. It seemed the broker’s sole focus and concern was to close the deal.
If I was successful in catching all the errors in the documents, I bought an attractive cash flow from a highly rated insurance company yielding 5.625% annually. Yet there is a lingering doubt that I didn’t catch everything. Zweig was absolutely right when he wrote that these deals are complex and can miss spectacularly. If my experience is any indication, that was an understatement. One thing’s for sure: I won’t be recommending them to others.
Allan S. Roth is the founder of Wealth Logic, an hourly-based financial-planning firm in Colorado Springs, Colo. His contributions aren’t meant to convey specific investment advice.