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Five Things Lawyers Should Know About Lawsuit Funding

Recently, I was asked what benefits a lawsuit funding company can offer attorneys who represent clients in need of pre settlement loans. That is, clients who have an immediate need for cash but who have already exhausted or otherwise do not have other avenues of cash currently available to them.

Lawsuit funding companies sometimes meet resistance from law firms when their clients apply for a cash advance. The reasons are many but usually revolve around a negative stigma attached to the litigation finance industry with regard to price AND the idea that counseling clients with regard to financial transactions is usually outside the scope of representation originally agreed upon by the attorney and client.

Below I address the top 5 things attorneys should know about the lawsuit cash advance business in an effort to address some of these concerns.

1. Not All Lawsuit Loan Terms are Oppressive.

I have touched on this in earlier posts, but the lawsuit funding industry has evolved since its inception almost 15 years ago. Not only have origination and processing systems become more efficient, but there is also much more competition in the marketplace. Thus, lawsuit advance outfits are forced to take a more competitive approach to pricing. In fact, case loans are routinely offered at lower pricing structures than at any other time previously. All of this has occurred in an economic climate where available risk capital is scarce and inflation rampant.

Today, it is not uncommon for lawsuit advances to be offered for up to 12% of the case’s value. And for less than it costs for an advance on a credit card. Of course, there are some lawsuit funding companies who have different portfolio objectives and must charge more expensive “rates” and fees to meet their objectives.

2. Rate is of Paramount Importance when Settling the Case.

Lawsuit funding operations are well aware of the need to settle cases. Attorneys who work on a contingency fee basis, such as personal injury lawyers, understand the best interests of all parties are served if the case settles before trial. Most plaintiff attorneys would agree even if a favorable verdict is reached, they still have to spend considerable time and money pursuing justice in the appellate courts. Lawsuit funding professionals, many who are attorneys themselves, are intimately aware of this fact.

Therefore, lawsuit cash advance liens rarely inhibit settlement. In fact, many steps are taken to ensure this unfortunate circumstance remains the exception rather than the rule. One such example is the limiting of the “lawsuit loan” to 10% of the estimated value of the case. With today’s rates and fees, an advance would normally fail to reach a level where the plaintiff and his attorney would be unable to settle the matter because of the lien.

Further, funding companies are usually flexible for purposes of settlement. If an unforeseen issue arises which would negatively impact the ability to recover damages, funding outfits – like most investors who want to ensure the safety of their risk capital first – would be likely to compromise the requirements of their contract in an effort close the file and move on.

3. Lawsuit Funding Applicants Need Attorney Cooperation.

The whole process of offering money against the future proceeds of a legal proceeding depends on the participation and cooperation of plaintiff’s counsel. From the moment an applicant requests funds, the attorney’s participation is required. First, his office must forward the relevant documents supporting the claim. Next, a conversation between the funding company and the attorney must occur prior to approval. Once approved, attorneys must then acknowledge the lawsuit funding agreement and recognize it as a valid lien on the file. The transaction is finalized and matter concluded when the attorney forwards a check from his trust account directly to the funding company.

I am unaware of any funding operation which will advance money against a lawsuit without the attorney participating in the transaction, at least on a limited basis. Without attorney participation, the funding process simply cannot happen.

4. Clients Need Speed. summons and complaint 

The majority of lawsuit funding clients need money immediately. It is doubtful any attorney who practices personal injury law has not had a client request an advance on his case. Of course, many state ethical rules prohibit this type of assistance. Yet that hardly helps plaintiffs who are behind on their bills or otherwise have financial difficulty.

What attorneys should realize is the process can and will move smoothly if the documents requested are forwarded in a timely manner. Most lawsuit loans are approved with less than 30 pages of documentation being analyzed. These papers can be faxed or emailed with minimal amount of time spent on the part of the lawyer or his support staff. This makes the approval process move quickly so the pre-settlement funding company can do its job and the client can get much needed relief as soon as possible.

Similarly, approvals for many lawsuit loans, especially the larger deals, depend heavily on a successful conversation with the attorney about the merits of the case and other relevant issues. Realizing an attorney’s time is limited and valuable, lawsuit funding underwriters do whatever is necessary to keep the conversation focused on only the most material considerations.



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