A promise to pay may be in the form of an oral or written agreement, and is considered an unconditional agreement whereby one party promises to pay a specified sum of money at a specified time (or on demand) to another party. It may be given in return for goods, money loaned, or services rendered. If the participant indicates the promise to pay is an oral agreement, he/she must provide a detailed written explanation of the date of the agreement, the original loan amount, and repayment schedule.
An oral or written ‘promise to pay’ received at the time the property is transferred is acceptable as fair and valuable consideration provided the claimant can prove:
- The ‘promise to pay’ is equal to the approximate market value. Follow steps in 1040.020.30 Determining Fair and Valuable Consideration.
- The person who made the ‘promise to pay’ had assets, at the time the property was transferred, to honor the promise. This policy only applies when the actual agreement itself includes provisions that specifically indicate the purchaser or borrower will have assets to honor the promise in a future lump sum
EXAMPLE: Acceptable Promise to Pay
In April, Mr. Smith sold his house for $5,500.00, which was the market value, to his nephew. His nephew had a $5,000.00 time certificate that would not mature until October. Mr. Smith and his nephew agreed the nephew would pay Mr. Smith $500.00 immediately and the remaining $5,000.00 in October when the time certificate matured.
If the promise to pay is a written agreement which indicates the borrower will have assets to repay the debt on a future date, a copy of the finalized contract must be provided and must verify:
- The plan for repayment;
- The asset owned by the individual that will be used as repayment;
- The specific date and time the asset to be used for repayment is available.
NOTE: If the debt is not paid within thirty days from the payoff date agreed to, the transfer will no longer be considered acceptable as fair and valuable consideration and a transfer of property must be explored.