Do I Need a Lawyer to Get a Lawsuit Loan?
If you look at the criteria to be eligible for a lawsuit loan, there are usually three prerequisites. First, you need to be at least 18 years old. Second, you need to have a valid claim. And third, you need to be represented by an attorney.
The first two criteria are really self explanatory. 18 years old is the age of majority in most states. Minors are unable to enter into binding contracts. Satisfying the age of majority means being an adult and being able to contract with others. Second, since you are selling a portion of a future settlement when you obtain a lawsuit loan, it stands to reason you should have a valid claim to secure the transaction.
In this post, we explore why you need to be represented by an attorney to obtain a lawsuit loan. Further, we discuss the requirement of contingency fee retainers. The reasons start to make sense once you look at lawsuit loans as an investment.
Lawsuit Loan Basics
Lawsuit loans are specialty financial transactions where money is advanced to plaintiffs prior to settlement. These contracts are designed as a sale of future settlement proceeds and are non-recourse in nature. They are intended to help plaintiffs who are struggling to pay expenses while they wait for their cases to resolve.
Traditional loans are repaid at some point in the future. Lawsuit loan repayment depends on whether you win your case. Since lawsuit funding companies use a percentage rate to calculate the repayment, the public refers to these transactions as “lawsuit loans”. This is actually a misnomer.
The difference between loans and lawsuit loans is that lawsuit loans are an assignment of property rights in the settlement. This is important because if the case is unsuccessful, the property purchased under the lawsuit loan transaction is worthless. The bottom line – if you lose the case, you don’t repay the advance.
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The Need for an Attorney
As citizens, we all have access to the legal system. The right to file a civil lawsuit is common to all of us. And many pro se plaintiffs access the courts individually every day.
Of course, there are only so many hours in the day and everyone cannot be an expert in everything. Just like hiring a mechanic can help take the hassle out of fixing your car, hiring an attorney can be a smart choice for those who have significant damages as a result of another’s actions/inactions. Attorneys have expertise in navigating the legal system and are trained in the application of law.
We’ve all heard of the lawsuits that were “thrown out on a technicality”. These otherwise meritorious claims are lost despite the best efforts of legal experts (lawyers). One can imagine how likely a procedural or other court rule might be overlooked by a litigant without the experience necessary to foresee these obstacles.
Lawsuit Loan Investors Want Expertise
Lawsuit loans are a financial lifeline for plaintiffs, but they are considered investments by lawsuit loan companies. Since losing the case means losing the investment, lawsuit loan companies require expertise in handling legal matters. These skills are considered essential and thus, a prerequisite for obtaining a lawsuit loan.
Contingency Fees and Lawsuit Loans
Not All Retainers Are the Same
Attorneys charging by the hour is one common way lawyers are compensated for their time and expertise. Common hourly attorney retainers can involve:
- Divorce attorneys
- Criminal attorneys
- Civil defense attorneys (representing individuals for insurance companies)
Of course, paying an attorney by the hour gets expensive. The good news is that there are other types of retainers designed to give people without deep pockets access to the court system.
One such retainer type is the contingency fee arrangement. In this retainer, the attorney is only paid if the case is successful. Normally, the fee is calculated as a percentage of the total recovery. These retainer agreements are most common in personal injury cases where potential plaintiffs might be unable to afford a lawyer who charged an hourly rate. Most personal injury attorneys offer contingency fee retainer agreements to their clients.
Another retainer type is a hybrid of the hourly and contingency fee examples discussed above. As you can surmise, attorneys bill a portion of the case “up-front” either to pay for costs or to otherwise offset expenses. The hybrid retainer also gives the attorney a percentage of the settlement or recovery albeit usually a smaller amount than with a straight contingency fee arrangement.
Need to Share the Risk
For purposes of lawsuit loans, the preferred retainer type is the contingency fee arrangement. This is true for multiple reasons.
The first reason is their common use in personal injury cases. Lawsuit funders prefer personal injury cases because they are easier to underwrite than other types of lawsuits. Underwriting lawsuits is a difficult endeavor. Lawsuit lenders prefer ease in underwriting when analyzing cases. Negligence cases, such as car accidents, will have accompanying documentation to prove liability (accident reports), damages (medical records and lost wage information), and ability to pay (insurance policies). Lawsuit funding underwriters need this information when trying to locate the perfect lawsuit loan.
Second, personal injury plaintiffs are often the most in need of lawsuit funding since they are often unable to work due to their medical conditions. It is no coincidence personal injury plaintiffs are the “bread and butter” of the lawsuit funding industry.
Finally, attorneys often front costs for their plaintiffs. When they enter into contingency fee retainers, they agree to see the case to its conclusion. This means they commit their time, money and resources in pursuit of the claim. Essentially, law firms invest in the outcome of their cases.
Lawsuit funders like to see this because it shows lawyers believe in their cases. Few lawyers will take on a case that is likely to lose unless it is for publicity. Lawsuit funding companies are likely to see the case as a contingency lawyer does. And this bodes well for plaintiffs in search of the best lawsuit loan.
Need for Attorney Cooperation
Lawsuit loan applicants not only need to be represented by counsel. They also need attorney cooperation in the lawsuit loan process. The process includes:
- Gathering relevant documents from the law firm
- Discussing the case’s merits with the attorney handling the file
- Executing the contract
- Funding the applicant
- Getting repaid by the attorney
When a typical lawsuit funding case is resolved, the proceeds are normally sent to the representing attorney first. The firm deposits the funds into an attorney trust account from which all liens must be paid. These might include court costs, filing fees, third party liens but will also include lawsuit funding payoffs. This makes the attorney the practical payor of the lawsuit funding lien and an essential part of the lawsuit loan process.
Final Thoughts – Contingency Fees Lawsuit Loans
As we discussed herein, representation and contingency fee retainers are the rule with lawsuit loans. There are exceptions so if you are unsure whether you will qualify, your answer is only a phone call away. Give us a call with any questions.
Thank you for your interest in contingency fees and lawsuit loans.