What Attorneys Understand About Lawsuit Loans
Origination of new legal funding business usually comes in two forms. Either the client contacts the lawsuit loan company or a lawyer refers a client who needs immediate cash against his/her case. Attorney referrals are the ideal way to secure funding because the referring attorney usually understands the funding business and can secure the best terms. We discuss the benefits of a lawyer/funder relationship in other posts.
New business initiated by the client is an entirely different animal. Although lawsuit funding requires attorney cooperation, sometimes attorneys are unfamiliar with lawsuit “loans” or otherwise reluctant to participate in the process.
When attorneys are reluctant to cooperate with their clients’ wishes, the reasons usually fall within the same few themes. This post will examine some of these issues in more detail.
Many articles have been written about the costs associated with lawsuit loans. We will not get into that topic in too much detail herein. However, it is important to understand that while the costs of these transactions are higher than traditional financing options, pricing for lawsuit cash advances have drastically declined in recent years. Moreover, by working with funders directly, the client can save as much as 50% off the cost of the advance.
Scope of Representation
Attorneys are understandably leery of representing clients outside the scope of the retainer agreement. When a client applies for funding, the attorney must balance his client’s interests with those of his own.
For example, a lawyer is hired through a signed retainer to represent a plaintiff who is injured in an automobile accident. As far as the attorney is concerned, his representation begins and ends with the personal injury action. Representing a client as to the nuances of contract law and lawsuit funding contracts may be beyond his level of expertise. Or perhaps the attorney simply does not want to spend his valuable time researching these topics without payment for his services.
In the vast majority of cases, this potential conflict is remedied because the attorney is normally willing to help his client, and more often than not, discussions about the process between the attorney and the funding company will put the attorney at ease. Funding companies simply want to make sure they will be repaid if there is a successful resolution to the case. They do not want to hang an attorney “out to dry” if something unforeseen should occur. After all, lawsuit funding companies want to be a resource to attorneys, not an adversary.
Difficulty in Settlement Negotiations
One of the most common concerns attorneys have with lawsuit funding is the idea that more liens on a file will result in difficulty settling the case. The thinking is that the client will not want to settle the case if most of the award goes to attorney’s fees, medical or other liens, and paying back the lawsuit loan. And this is a legitimate concern. For example, one can easily foresee a client wanting to “roll the dice” and go to trial if his portion of the award is what he feels is less than adequate. Trying cases costs money and time so attorneys are likely to resist anything which would increase this possibility.
What is important to realize however is that pre-settlement finance companies do not want a case to go to trial either because almost anything can happen in a courtroom, and often does. Accordingly, funders take steps to mitigate this risk by limiting the amount of capital advanced on any particular case. More often than not, a conversation with the attorney will quell concerns about this issue. Since the advance amounts are designed to gain a return, they are usually low enough so as to avoid this problem.
Of course, attorneys may have a multitude of reasons to discourage their clients from obtaining lawsuit funding. The above issues repeatedly come up when dealing with these concerns and are routinely resolved through communication and mutual understanding.
Thank you for your interest in the pre-settlement loan industry.