Is It Possible to Get More Than One Settlement Loan?
Of course, the answer is that it depends. In this article we examine multiple settlement loans, how and why they occur and some limitations on the practice.
What are Settlement Loans?
Settlement loans are financial transactions where a lawsuit lender provides immediate cash to a plaintiff in exchange for a portion of a future settlement. Because the transaction is an advance, these deals are not “loans” in the traditional sense of the word, since it is only repaid if the case is successful.
Thus, settlement loans are non-recourse funding options for plaintiffs who cannot qualify for other types of financial liquidity arrangements.
Why Multiple Settlement Loans?
Typical settlement loans occur when plaintiffs have exhausted other opportunities to access cash. These might include:
- loans from friend or family
- cash out mortgage refinancing
- early withdrawal of retirement funds
- sale of financial or other assets
- loans from life insurance
- and others. . .
Simply put, the purpose of settlement loans is to allow plaintiffs to pay their expenses while they wait for their cases to resolve. With financial support, plaintiffs can reject low-ball settlement offers and allow their attorneys to fight for every nickel.
How Multiple Settlement Loans Occur
Multiple settlement loans can occur because a plaintiff needs more money to meet his/her needs. This is common as the majority of lawsuit loan clients apply for and receive multiple lawsuit loans.
Lawsuit lenders will generally consider multiple fundings if there is enough “room” in the case. Based upon certain underwriting considerations, a lender will generally advance money up to a certain ratio of loan amount to settlement value. Depending on variables such as venue, insurance coverage, and expected duration of the case, lenders will advance up to 10-20% of the case’s settlement value. Until that ratio is reached, settlement funders will likely advance money multiple times to clients.
In some instances, the initial “lender” refuses to advance additional money. Reasons might include too much exposure to a certain case type, the need for portfolio liquidity or the company feels the case is sufficiently funded. When this occurs, plaintiffs often seek other sources of funds or even engage other settlement loan providers for additional support.
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Multiple Lawsuit Loan Issues
When multiple settlement loans are sought without the original funder’s involvement, some important issues naturally arise. These include:
Multiple Settlement Loan Buyouts
Contractual language in MOST lawsuit funding contracts prohibits the advancing of money to a plaintiff without simultaneously paying the initial advance(s) off in full. That is, multiple settlement loans by different funders are not generally allowed. “Funding behind” an existing lawsuit loan company is frowned upon in the industry and fails to meet the best practices guidelines as expressed years ago by the New York Attorney General.
Despite these means of self-regulation, multiple fundings can occur. This can be a result of miscommunication on behalf of the client, attorney and lender. Multiple contracts can also occur if one attorney is fired and new counsel retained. If the account is not monitored correctly, the funding agreement sometimes gets lost in the shuffle of paperwork between the two offices. These are just two examples.
Mistakes Can and Do Happen
When multiple settlement loans occur, whether intentional or by mistake, it can become a dicey situation. The first funder will likely want lien priority since they were the first to advance money. Remember, “funding behind” the original advance without satisfying the initial lien is against the contractual language. If this issue were to be litigated in court, the first funder would have a strong argument in favor of a primary position.
In real world practice however, compromise is usually the solution. All parties are intimately aware of the cost of litigation. Most funding companies will reduce their payoffs and simply move on if it is in there best interests to do so.
Multiple Funding Takeaways
As you can see, multiple settlement loans are common. Lawsuit funding is a flexible liquidity option for plaintiffs who need financial support. Plaintiffs benefit from smaller advances because they use the money as the need arises. This avoids having to pay “use fees” on money that will not be needed until later on.
While multiple fundings help plaintiffs, some limitations still exist. As mentioned above, only a finite amount of funding is available. Additionally, best practices dictate that a previous funder must be “bought out” of their position if additional money is advanced by a competing entity.
We hope this post helps you in understanding more about multiple settlement loans and the lawsuit funding industry. Thank you for your interest in multiple settlement loans and Fair Rate Funding.