Attorneys Use Lawsuit Funding to Benefit Their Practices
Attorneys use lawsuit funding properly by fostering working relationships with reputable lawsuit lenders. These relationships are a valuable asset for your firm.
Since each lawsuit is unique, attorneys sometimes require flexibility from lawsuit lenders to provide much needed liquidity for clients. These funds can be used for any purpose ranging from surgical procedures to daily living expenses.
In this post, we examine the best way to find the best lawsuit funding company, assure the terms of legal funding contracts are fair and transparent and explore how lawyers can best use lawsuit funding relationships.
Understanding Contract Structure and Costs
Almost all lawsuit funding agreements assign property rights in a portion of the future proceeds of pending litigation. The contracts are drafted in this way so the transactions are “non-recourse” and fall outside the realm of traditional loans for purposes of state usury laws.
According to the contract, the lawsuit cash advance is to be repaid from settlement or judgement proceeds and lenders cannot pursue plaintiffs personally for repayment. Thus, if there is no monetary recovery, the advance is not repaid. While percentages and time are factors which dictate repayment amounts, the contingent nature of a successful outcome makes these transactions unique.
While there is a wide range of lawsuit loan pricing methods used by different lawsuit funding companies, the vast majority of advances on pending lawsuits‘ repayment schedules are calculated in one of two ways.
The first way is through a compounding monthly rate. The normal range is 2.5% to 3.5% per month. The second way is by calculating a simple interest rate based on the contract amount. Clients can expect to see a range from 18% -50% every six-months until the case is settled and advance repaid.
All Rates Are Not Equal
You may be surprised to learn that a compounding monthly rate may not be as oppressive as it sounds. In fact, if a lawsuit were to settle within the first 6 months after an advance, the average compounding monthly rate is cheaper than a flat rate calculation. After that time frame, but before 24 months, both rate structures are remarkably similar. Only after 2 years is the compounding effect noticeable.
There are pros and cons to both lawsuit loan rate structures. And although the contractual language of lawsuit funding transactions is not complex, what personal injury attorney wants to spend the time becoming an expert in this field? As attorneys, we cannot be an expert in everything. Couldn’t your time be better spent elsewhere?
The nuances of lawsuit loan contracts are easily grasped when you have a “go to guy” in the lawsuit funding business. A good working relationship with a funder you can trust will save you a great deal of time in the long run.
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Understanding How Attorneys Use Lawsuit Funding Properly
Lawsuit funding operations design contracts which protect their interests in the event a dispute arises. Obviously, lawsuit funding companies are concerned with repayment of capital. Intelligent lawsuit funding companies are also concerned with creating mutually beneficial relationships with attorneys and their clients. They understand the value of attorney referral business to the extent that it lowers the cost of lawsuit loan case origination.
Smart plaintiff attorneys use lawsuit funding properly when they understand funders’ business needs and balance them with the needs of their clients. For example, consider a personal injury case where the plaintiff was not forthcoming about prior injuries. Once deposed, plaintiff was forced to admit injuring the same body parts in a prior accident. One can expect any settlement offer to be well below what was projected by lawsuit funding underwriters relying on limited information.
The result might be difficulty in settling the case. After all, the lawsuit loan, if paid off in full, will yield virtually no recovery for the plaintiff personally. Meanwhile, the attorney cannot “sell” a reasonable settlement offer to his client who wants to go to trial to see what happens. Of course, the plaintiff is unaware of the costs associated with going to trial. He/she may have read an article online stating a particular injury type is worth over $1,000,000 in settlement.
Faced with the “throwing good money after bad” prospect of prepping for trial, hiring experts and actually picking a jury, attorneys who have existing relationships with lawsuit funders can approach these companies and explain the situation. Although many would not be pleased, professional funding operations understand the value of repeat business and will usually be reasonable if settlement negotiations break down. Having to take a reduction on a single case is far more palatable when that same firm routinely refers clients for funding.
What are the First Steps?
Contact a lawsuit funder about their programs and make sure you get at least a ballpark estimate of the costs. These should include process fees, underwriting fees, application fees, and origination fees, if any. Attorneys should ask questions about how the advance is amortized, when repayment is expected and what exactly are an attorney’s obligations under a typical agreement.
By beginning a dialogue, you will get a feel for whether the funding company is up front and honest with the information you request and a sense of what it will be like to do business with the company in the future. From there, it is just a matter of getting comfortable with the lawsuit loan process and the players.
Choose Fair Rate Funding
At Fair Rate Funding, we want to be a resource for your firm and your clients. We are plaintiff advocates in that we afford litigants the financial support they need to pursue their interests in the court system. We’ve been doing so since 2007.
If you have any questions of any kind about how lawsuit funding can help your practice, please contact us at 888-964-2224. We are here to help and are at your service.
Thank you for your interest in the lawsuit funding business.
