lawsuit funding lawyer information Archives

In the last installment, we discussed how fostering a working relationship with a reputable lawsuit funding company can prove to be a valuable asset for your firm. Since each lawsuit is unique, attorneys often require flexibility from a lawsuit funding company 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 installment, we tackle the first step in finding a reputable lawsuit funding company and assuring that the terms of the agreements are fair and completely transparent.

The Contract

Almost all lawsuit funding agreements assign property rights in a portion of the future proceeds of a pending litigation. The contracts are drafted in this way so the transaction is deemed “non-recourse”. In other words, if there is no monetary recovery in the case, there is no repayment of the advance. Although percentages and time are factors that will dictate the eventual repayment amount, these transactions are not loans (sometimes they are called “lawsuit loans“) so they are not technically governed by state usury laws.

While there is a wide range of pricing methods used by different lawsuit funding companies, the vast majority of contract 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 these 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.

Hard to Foresee the Future

Lawsuit funding operations design contracts which protect their interests in the event a dispute arises. Obviously, the lawsuit funding company is concerned with repayment of capital. However, an intelligent lawsuit funding company is also concerned with creating mutually beneficial relationships with attorneys and their clients.

While it is difficult to foresee what the future holds, 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 has previously referred dozens of clients for funding.

What is the First Step?

Contact a funder about their programs and make sure you get at least a ball park estimate of the costs associated with their typical advance. The costs should include items such as process fees, underwriting fees, application fees, and origination fees, if any. Attorneys should ask questions about how the advance is amortized, when the payback is expected and what exactly are the attorney’s obligations under their 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 you can get a sense of what it will be like to do business with the company in the future.

At Fair Rate Funding, we want to be that 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.

If you have any questions of any kind about how lawsuit funding can help your practice, please contact us at 888-964-2224.

In the next post, we will discuss other material terms of the typical lawsuit funding contract, what terms are negotiable and what terms are set in stone. We will also touch upon some additional benefits law firms receive when dealing directly with a lawsuit funding company.

Previous installments of this series can be found here.

Thank you for your interest in the lawsuit funding business.

In the last post, we discussed how an unregulated lawsuit funding market allows for increased flexibility and touched on how that flexibility may be able to help attorneys and their clients in the realm of pre-settlement funding. The post also touched on an approach which, if implemented correctly, allows the attorney to utilize this flexibility to the benefit of those whom he/she represents.

In this post, we discuss the benefits of this strategy and how to implement it.

Lawsuit Funding Scenarios

Most clients will ask their attorneys for money if times are difficult, like when an injury prevents a plaintiff from going back to work. Most state ethics rules prohibit attorneys from advancing money to their clients. So when a client needs money, they apply for lawsuit funding.

The money can be used for all sorts of expenditures: rent, food, utility bills, college tuition, child support, car payments and even surgical procedures can all be financed through the selling of the portion of the future proceeds of a case.

Although clients face the similar financial pressures during their lawsuit, it is equally true that all lawsuits are different, each with its own set of facts and circumstances. This fact poses additional risk for the funding company because the underwriting of this risk is extremely subjective. And this subjectivity means that even though one lawsuit funding enterprise considers a lawsuit “fundable”, another may not.

Indeed, lawsuit funding applicants are turned down every day only to be later approved by another funding outfit for the same case. This uncertainty is a simply one characteristic of a dynamic business model.

Would it not be advantageous for the client to have their attorney minimize this uncertainty while securing the best funding deal possible? Considering the value of an attorney’s time, would it be in the best interest for the attorney to negotiate this deal only ONCE, thus securing the best possible terms with the least amount of time expended?

The Point

What we are talking about here is fostering a relationship with an established lawsuit funding enterprise, one that has the client’s interests in mind because in the lawsuit funding business, attorney satisfaction is an integral part of the business’s growth.

How to foster this relationship?

Creating a working relationship with a lawsuit funding company is as easy as 1-2-3.

Contact a lawsuit funding company about their programs and make sure you get at least a ball park estimate of the costs associated with the advance. The costs should include items such as process fees, underwriting fees, application fees, and origination fees, if any. Attorneys should ask questions about how the advance is amortized, when the payback is expected and what exactly are the attorney’s obligations under their typical agreement.

Establish a working relationship wherein you refer clients to the funding company, who in return, pledges prompt and efficient service, as well as complete transparency in how the company works and what is to be expected from all the parties involved. This step will ensure that if and when any concessions must be paid in the interest of settlement, they will be approved in short order. It will also develop a scenario where lawsuit funding will increase the firm’s revenues without the firm having to make any additional expenditures. More on this later.

Abide by the terms of the agreement if at all possible. If a problem arises, talk straight to your contact at the company. Lawsuit funding is an investment business. Investors are normally more than concerned with the return OF their capital than on a return ON their capital. If a compromise can be made in the best interests of all parties, then negotiate same with transparency and integrity.

If the firm puts forth an honest effort and is able to establish a healthy working relationship with a lawsuit funding company, the rewards will greatly outweigh the time spent in pursuing the connection.

In the next post, we will discuss in detail step one of this list and take the mystery out of lawsuit funding pricing and fees. In later editions, we will discuss the tangible and intangible benefits of having a lawsuit funding company in your firm’s corner. The last four installments of this series can be found here.

Thank you for your interest in the lawsuit funding business.

Courting a Lawsuit Funding Outfit to Suit Your Firm’s Needs

lawsuit funding lawyer information