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How Can You Help Yourself in Obtaining Lawsuit Funding?

lawsuit funding

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When offering a cash advance for a pending case, lawsuit funding companies analyze a wide variety of information.  At Fair Rate Funding, we frequently are asked how the client can help us during the case loan process.  Below is a brief outline of the steps clients can take to help obtain cash for their lawsuit.

  1. Gather and Submit Information Relevant to the Case– Clients frequently possess much of the information needed to evaluate a lawsuit for funding.  For example, if the client is requesting a lawsuit loan for a automobile accident, clients may already possess the police report, insurance information, and perhaps some medical records.  In some cases, this information may be enough to render a decision on the “fundability” of the lawsuit.Non Recourse Lawsuit Loan
  2. Communicate with your Attorney your Desire to Enter into a Lawsuit Funding Agreement– The reasons for needing a lawsuit loan against your legal case are many.  However, if your attorney does not know the situation, he/she may resist the process.  Be upfront and honest about your desires and your attorney will be more willing to cooperate.
  3. Be Patient– Lawsuit funding companies are in the business of helping clients obtain money.  They only get paid if cash is advanced so the process is virtually never adversarial.  You and the case loan workers are on the same team for purposes of obtaining a lawsuit loan.  Help each other out and allow the workers to go through the necessary steps.  Help them, help you.
  4. Ask– Ask your funder if there is anything you can do to help.  In most cases, the professional lawsuit advance worker will be able handle the process in its entirety.  But, you never know when that one piece of information will make a difference in the underwriting process.
  5. Understand– Lawsuit funding is a business and business is not personal.  If your case can be funded, it will.  But the underwriting process is VERY subjective.  What is a great case for one legal loan outfit, may not suit the tastes of another.  If at all possible, lawsuit loan companies advance cash on a lawsuit.  The trick is understanding the nuances of the business and working within those parameters.
  6. Realize You Still Have a Good Case– Even if a legal loan is not offered, that does not mean you do not have a valid claim.  Your lawsuit may be so complex that a company may not want to take a chance on it.  Or, there may be unresolved legal issues when you apply.  Your attorney would not be wasting his time or yours if he/she thought there was no chance of recovery.  You probably still have a good case despite what the underwriters think.  The fact is that not every case is a good fit for funding.

The above are only a few of the possible points which potentially help a client understand the truth about lawsuit loans.

Thanks for your interest in the lawsuit funding business.

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Looking into Lawsuit Loan Cost

The lawsuit loan, also known as lawsuit funding or pre-settlement funding, is a unique investment. Its structure allows investors to assist plaintiffs in ongoing litigation with immediate cash to help pay their expenses while the lawsuit is litigated. This post analyzes lawsuit loan cost and helps identify the unique nature of these specialty finance products.

Lawsuit Loan Cost Reflect Cost of Production

Wherever there is a need, you will find entrepreneurs trying to fill that need. In any business, there are costs associated with providing the service or product.  The lawsuit loan business is no different.

lawsuit loan cost

Occasionally, critics target the lawsuit loan industry as too expensive or predatory to those who are desperate for financial resources.  Despite these claims against the cost of the lawsuit loan, lawsuit loan cost simply represents the cost of providing the service for profit.  Lawsuit loan “rates” are certainly larger than mortgage rates or car loans.  But major differences separate these types of monetary transactions.  In truth, a lawsuit loan is far different than a car loan or a mortgage – regardless of the use of the word “loan”.

Lawsuit Loan is a Misnomer

The term “loan” implies repayment at some point in the future.  Car loans, home loans, and others are “secured” by collateral.  That is, the car or home can be “repossessed” and sold by the lender to satisfy some or all of the loan principal and costs.

To be sure, other loans are not collateralized, and as such are deemed “unsecured loans”.  Simply because a loan is unsecured however, does not mean the lender has no recourse.  In fact, unsecured debt is collected in a myriad of ways after a borrower defaults.  It is common for judgements to be entered and wages garnished in collection of unsecured debts.

Contrast this with the non-recourse nature of a lawsuit loan.  In a lawsuit loan transaction, no collateral is offered.  The client assigns a portion of the proceeds of the lawsuit to the funding company in exchange for a present sum of money.  Because the transaction is structured in this manner, the only transfer of value for purposes of collection, occurs if the lawsuit is successful.  Therefore, lawsuit loan deals are deemed “non-recourse” which means the lawsuit loan company cannot collect directly from the client in the event the lawsuit is lost.

The failure of clients to be personally liable for the repayment of lawsuit loans makes it a more risky proposition for investors.  That risk must be represented in the pricing and is a reflected in lawsuit loan cost industry wide.

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Lawsuit Loan Cost and Risk Assessment

20 years ago, when the lawsuit loan business was at its infancy, lawsuit loan companies charged high rates and fees for lawsuit cash advances. Lawsuit loan cost has decreased since that time as more historical data became available.  With this data, investors were better able to assess the risk of loss and expected return. Until only a few short years ago, investors were ‘flying blind’ in an investment arena without a suitable data set of historic returns.

While lawsuit loan cost is lower than in years past, the average lawsuit settlement loan still commands a higher cost than a car or home loan. But this is true because the two are entirely different transactions as discussed above. 

For example, a car loan is secured debt which means that if payments are not made, the creditor can repossess the vehicle in partial payment of the loan.  Further, the lender can collect on the loan by attaching a claim on any other asset the client might own.

Conversely, a lawsuit loan is “non-recourse” in that if there is no recovery, the advance is not repaid. The lawsuit funding company purchases a portion of the proceeds of the case. So the transaction is really a asset purchase instead of a loan.  If the lawsuit is unsuccessful however, the investor has NO claim against the plaintiff. Repayment must come from the lawsuit itself, that is the risk the lawsuit loan cost reflects.

In Conclusion

As the lawsuit funding business evolved, it became more efficient.  Because of competition, this efficiency reflects in pricing.  And the savings are ultimately passed on to the client.  Perhaps this is the most important reason why the quality of cases ultimately approved for a lawsuit loan is increasing and the price points for these “preferred cases” is decreasing.

Thank you for your interest in the lawsuit loan business.

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Lawsuit Funding Buyouts Show Flexibility

Often, clients receive lawsuit funding and later need more money than their original lawsuit cash advance.  Lawsuit funding companies usually give more money to a plaintiff/client with a strong enough case to justify the additional risk.  But the determination is subjective.  That is, the lawsuit funding company can simply refuse to advance any more money on the case.

When this occurs, the client has a choice to make.  Either they find another source of money outside the lawsuit funding arena, or they find another settlement loan outfit to advance them more money.

Lawsuit funding buyouts are an option for these clients.  A lawsuit loan buyout is when a second settlement loan company pays the original company in full and advances more money to the client.  The advance is “re-financed” because the plaintiff now must repay only the second lawsuit lender.

Lawsuit Funding
Lawsuit Funding

Lawsuit Loan Buyouts Can Save You Money

At Fair Rate Funding, lawsuit funding applicants routinely apply for additional funding after an initial lawsuit loan is received.  If the applicant received lawsuit funding from another company, we call these cases “buyouts”.  This term is used because in order for a lawsuit funding applicant to receive additional funds, the prior advance must be paid in full by the “new” settlement funding company.  This is because the second funding company does not want to be second in line when it comes time to repay the advance.  Also, it is likely the different lawsuit funding agreements possess different terms and conditions.

Lawsuit funding for a plaintiff who has already taken a lawsuit cash advance against the lawsuit can be a tricky affair because lawsuit lenders will only advance a certain amount of money on the case.  That amount is normally 8-12% of the estimated settlement value of the lawsuit.  If the prior funding “payoff” is at or near this amount, no additional funding will be offered.

The Benefits of a Lawsuit Funding Buyout

Nevertheless, additional settlement loans are advanced every day.  And the effects of these transactions can actually benefit the plaintiff.

Consider a plaintiff who signs a $10,000 lawsuit funding agreement which calculates the “use fee” (interest) at 3.25% per month compounding monthly.  The nature of this rate structure is to lower the repayment amount in the first year and a half of the contract term.  In other words, the payoff for these contracts would be cheaper for the client if the contract were to settle in the first 18 months after the advance.

Due to unforeseen circumstances, the client learns his case is several years away from getting a trial date.  There could be many reasons for this but what is important to realize is that the longer the case drags on, the more interest is charged.  Because the interest is calculated on the previous month’s balance, the higher balance generates a higher payoff amount.  This is known as a “compounding effect”.

Contrast this to a fixed six (6) month “use fee” structure where the charge is calculated on the original contract amount and not the previous month’s balance.  The “charge” for the use of the money remains the same at the end of the case as it did at the beginning.  In this situation, the client may be far better off “refinancing” his existing advance with a lawsuit funding with a different rate structure.

In this situation, a buyout benefits the client by locking in an use fee that is non-compounding.  The client gets more money to use at his discretion before the case is concluded and the pre settlement funding company gets a “fundable” case to invest in.

Lawsuit Funding Flexibility Allows for Creative Solutions

The flexibility of lawsuit funding to meet these needs is a real benefit to plaintiffs because there are no pre-set rules (regulations) stating what two free market participants can do when they enter into a contract (lawsuit funding agreement).  As such, funding structures such as buyouts, monthly stipends, and flexible repayment terms all afford plaintiffs the ability to tailor the transaction to suit his/her needs.

Thank you for your interest in the lawsuit funding business.

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Lawsuit funding is the process of advancing money to plaintiffs in return for a portion of the proceeds of their lawsuit.  The money can be used to fray the costs of litigation or to pay for daily expenses while the matter is litigated.  Below are the top 5 things applicants should know when applying for lawsuit settlement loans. [Read more…] about Lawsuit Settlement Loans – Top 5 Things You Should Know

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