Tuesday, November 19, 2019

Housing Authority - Part 4

Are pawn shop loans income? Is the use of a pawn shop a "business"?

At one point a clerk at the Housing Authority provided the tenant with its form for calculating business income. The Housing Authority was trying to support its unjustifiable position that a pawn shop transaction was a business. It provided a worksheet titled "SELF-EMPLOYED INCOME WORKSHEET".

The first problem with completing it, of course, is that the Tenant was not self-employed. And then the Housing Authority had considered the total of several loans as income, without any adjustments for expenses.

The question of completing such a form and for a tenant to submit it could put the tenant in a position of having submitted false information to the Housing Authority. The Authority offered the form and expected him to complete it. But where would the legal responsibility fall, if he did complete it and submit it?

It's a pretty big deal, in my book, to submit a form containing false information to a HUD-affiliated agency.

But let's go down the path followed by the Housing Authority.

How much income would a pawn shop customer have, if he borrowed $100. A typical pawn shop transaction requires collateral worth substantially more than $100. Then the borrower (customer) must pay back the loan, plus interest, within a stated period of time; that time period is, for example, 30 days. That's why these are called "short-term collateralized loans".

Let's say the pawn shop charges a fee of 20% for a 30-day loan. When the customer redeems the pawn ticket, he would pay $120.00 and get his collateral back.

You figure it out. How much "income" did he have?

First of all, he didn't have any income, because it was not a business transaction.

But, if you filled out the Self-Employed Income Worksheet and put $100 on the top line as income, where would you put the $120 that he paid back? Would you list that as an expense?

How much is $100 less $120? There is, of course, no "income". In fact, there is a loss. A $20 loss.

The tenant and the Housing Authority could not reach a meeting of the minds, and the conclusion reached by the Housing Authority was appealed. An appeal hearing was scheduled for September 27.

Of course,, that was well past the due date of the September rent and just five days before the tenant's October rent was due.

Some back tomorrow to learn about the hearing on the appeal.

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