A lawsuit funding transaction is the selling of part of the future proceeds expected from a pending litigation.  The plaintiff  in the lawsuit effectively transfers by contract a portion of the case once it is successful.  Part of the transaction is the agreement that the contract will be placed in the file as a “lien” against the future settlement.  In other words, the property must be repaid, with costs, to the rightful owner BEFORE the plaintiff receives any of the settlement.

A lawsuit loan is only one potential lien which may exist in any given file.  Below we discuss some common examples of liens contained in litigation files.

1.  Attorney’s Fee – In cases where the attorney’s fee is only paid if the case is successful (otherwise known as contingency fees), the attorney’s fee is essentially a lien on the proceeds of the case.  These terms are sometimes negotiated and memorialized in a retainer agreement signed by the attorney and the client.  And are most commonly seen in personal injury cases.  The fee usually ranges from 33% to 40% of the total recovery.  Of importance for purposes of lawsuit funding is that the attorney’s fee is superior to all other liens in the file.

2.  Letters of Protection – Similar to the above, letters of protection are usually found in personal injury actions where there is extensive medical treatment.  Basically, a letter of protection is a written acknowledgment, by an attorney, that his office will “protect” the medical provider’s lien for medical treatment rendered.  It is unclear whether these acknowledgments take priority over lawsuit funding transactions, but nonetheless, pre-settlement funding companies pay special attention to outstanding medical bills when underwriting a case.  Sometimes the amount of the LOP is negotiated at the time of settlement, particularly if the attorney and medical provider routinely represent/treat the same individuals.

3.  Federal Tax Liens – By law, the presence of Federal Tax Liens take priority over other liens in the file.  And this should come to no surprise to anyone since Uncle Sam wants his money first.  These liens will typically attach to the proceeds and may have to be directly deposited with the IRS or other Federal Agency as full or partial payment of these obligations.  In some instances, these amount can be negotiated down in an effort to settle a case.

4.  Child Support – Most state laws require the presence of child support liens be superior to lawsuit loans.  The public policy argument is obviously to protect the welfare of children.  Yet the presence of these and all other liens sometimes hinder settlement negotiations as the plaintiff suddenly realizes that he is pursuing his case to pay off his creditors.  Under these circumstances, what is the plaintiff’s incentive to settle?

The litigation cash advance business is only really concerned with liens which take priority over the lawsuit loan as a matter of law.  This is truly jurisdiction specific but the liens mentioned above are commonly seen in the day to day business dealings of lawsuit funding companies.

Thank you for your interest in the pre settlement loan business.

pmc