Reversals of court orders on structured settlements are exceedingly rare considering the number of transfers completed. It’s *almost* negligible. But that’s not to say there are zero risks.
Nothing in life is without some degree of risk, and in our marketplace we look first at what’s known as ‘transfer risk’.
More specifically, what we watch for in due diligence prior to purchase are cases of fraud. This would be a fraud perpetrated on all parties (factoring company, court, and DCF as the investor) and done by the seller- e.g. identity theft.
We take many precautions to mitigate transfer risk, such as checking ID, checking notary blocks, in-person hearings, verifying delivery of funds, presence of professional advisors, and using qualified counsel, etc.
Once an order is enrolled, it’s generally a done deal. There is a state-specific and short window for appeal of an enrolled final order- usually 30 days – after which it’s closed and final.
In addition to fraud by sellers, which is usually rooted out early in the process, there have been examples of bad practices on the part of an originator.
One such case is a matter still pending in Maryland with the company Access Funding, where an activist attorney general targeted Access after a reporter wrote some articles in the Washington Post about the company’s marketing and sales practices.
Undoubtedly Access pushed the envelope at times in their marketing and sales practice, but I am not aware of any laws broken. It’s our hope in the industry that Access’s defense of this matter will ultimately prevail, but it’s been a very long and I am sure very expensive process for them.
To the best of my knowledge, secondary market payees are all receiving their payments while the matter is being litigated. In addition to the AG matter, a class action case was filed against Access. Remarkably, the Attorney General fought this class action and prevailed, taking money AWAY from the very residents he’s supposed to protect! Indeed, this more and more looks like a vendetta case by the attorney general as it’s been years that this has been going on, and the sellers had a viable offer of cash compensation thru the class action. To my knowledge, no payments have been reversed or orders unwound.
Risk of Carrier Insolvency
There is a slight risk of carrier insolvency, but it is quite rare and to my knowledge state guarantee funds do have precedence in protecting structured settlement payees and tertiary (secondary) payees. It is difficult to get a definitive answer on this topic, and state guarantee funds shouldn’t be used in sales presentations anyway, but the situation of Executive Life of NY gives guidance. http://www.gabenefitsco.com
Structured Settlement Securitization Resources
Finally, for statistical guidance on reversals of enrolled orders, another source of data are the offering documents of the securities offered by larger players like JG Wentworth and others. In those offerings would be statistical evidence of default rates. Alternatively, here are links to AMBest and Moody’s underwriting guidelines for asset-backed securities in this industry, published in 2011 but largely still valid.