Determining Settlement Loan are Risk to Plaintiffs

Settlement loans are financial transactions where plaintiffs with pending lawsuits access a portion of their case’s value, prior to their conclusions. Plaintiffs sell a portion of their potential award to lawsuit “lenders” and receive immediate cash in return. This influx of money can be used for any expenditure but are mostly used to weather the long, drawn-out litigation process plaintiffs commonly face. There is settlement loan risk. But there are risks on both sides of the transaction. In this post, we analyze settlement loan risk for plaintiffs and lawsuit funding companies.

Settlement Loan Basics

Many reasons exist as to why lawsuits take significant amount of time to conclude. More important than the question “why?” is understanding how legal system delays give rise to lawsuit funding. Plaintiffs, many who are injured as a result of an accident, often are unable to meet their financial obligations while they pursue justice. To ease the strain, many clients ask their lawyers for an advance on the lawsuit proceeds. However, state ethics rules often prohibit the practice of advancing money to plaintiffs in anticipation of settlement – the idea is to discourage attorneys from paying for clients.

Policy reasons offer no relief for injured plaintiffs who desperately need to find a way to keep current on their monthly obligations. Lawsuit loans are designed to fill this need.

Also known as settlement loans, these deals advance money to personal injury and other plaintiffs prior to settlement. Settlement loans are different from traditional loans since they are non-recourse. This means the advance must be repaid from the recovery itself and not from plaintiffs personally. Essentially, they only repay if they win their cases. This unique feature affects settlement loan risk for investors but are also a low-risk option for clients.

Structure of Transaction Affects Settlement Loan Risk

As stated above, the unique nature of settlement loan transactions affects settlement loan risk. This is because risk to investors is increased. As investment risk increases, so must lawsuit loan cost. Below we investigate settlement loan risk for both plaintiffs and funding companies.

Settlement Loan Risk for Plaintiffs

Settlement loans are often referred to as risk-free transactions because they are only repaid if the lawsuit is successful. Someone must bear the risk of loss, and that someone is usually the consumer. Thus, the risk of loss reveals itself in lawsuit loan rates and other fees plaintiffs must repay in the event of a successful resolution of their cases.

Settlement loan risk is evident in competitive pricing models for lawsuit loans. While there are differences between personal loans and lawsuit loans, the most glaring difference is the use of a percentage rate and its application to the funding contract amount. Personal loans secured by collateral (e.g. mortgages, car loans, home equity lines of credit (HELOC), and others begin at 5% and can reach up to 10% under current market conditions.

Lawsuit loans are largely unregulated. Yet, market forces keep prices down to competitive levels if plaintiffs spend the time to diligently shop for lawsuit loans. Generally, search for settlement funding rates around 18% every 6 months. Of course, additional fees can add to the overall expense, so be sure to ask questions.

Costs may be higher than traditional loans but settlement loans are generally a risk-free proposition for plaintiffs.

Settlement Loan Risk for Investors (Lawsuit Funding Companies)

Settlement loan risk may be minimized for plaintiffs, but the risky nature of lawsuit loans is exactly why they cost more. Consider that any loss for a lawsuit loan company is a total loss of investment. Consider further that losses only represent a portion of the line item expenses funding operations must meet before profit can be realized.

Because the loss of a particular case is a total loss, lawsuit loan underwriters must analyze their lawsuit loan approvals in relation to overall portfolio concerns. Indeed, managing lawsuit funding investments is a study unto itself and requires a level of expertise above and beyond just analyzing the merits of a particular case. Managing settlement loan risk can mean the difference between a profitable/unprofitable enterprise.

More on Settlement Loan Risk

In short, settlement loan risk is shared between plaintiffs and lawsuit lenders. Lawsuit loan companies bear the risk of loss. Plaintiff access risk-free lawsuit loans, but must also bear the cost as investors’ risk of loss is reflected in the pricing.

Find Out More

To find out more about settlement loan risk and/or the benefits of lawsuit loans, simply give us a call. When you do, you’ll reach a LIVE representative that will answer all of your questions – not some operator that will take down your information so that a salesperson can follow up.

We are experts in this area and have been helping plaintiffs since 2007. We are legal professionals, so we are especially aware of the challenges plaintiffs face during litigation. We are here to help you stay on your financial feet – while your case progresses.

Why Choose Fair Rate Funding

You obviously have a choice in who you use for legal funding. We offer:

• Simple and Easy Process – Approval only on strength of your case.
• Risk – Free Proposition – Only repay if you win your case.
• Rapid Approval and Funding – Approvals often within 24 hrs.
• Up Front Pricing – Absolutely no hidden fees.

Apply Now

How to Search for Settlement Funding – The Right Way

Settlement funding is a class of specialty financial transactions in which plaintiffs involved in pending litigation can access the potential value of their cases, prior to settlement. They pledge a portion of their recovery in exchange for an immediate influx of cash from settlement funding companies. In this post, we explore the search for settlement funding – what you should look for and what you should avoid.

Settlement Funding Background

The need for settlement funding arises from legal system delays present in pursuing justice in the civil judicial system. Delays are inherent in the system as both parties seek to get an accurate account of each parties’ version of the event(s) in question. Unfortunately, many plaintiffs find themselves in financial trouble as they wait for their cases to make their way through the litigation process. This is especially true if compensation for injuries is sought in the proceedings.

Many injuries require extensive recovery and treatment. Some are so severe as to prevent plaintiffs from working while their cases progress. This can lead to financial strain, causing some plaintiffs to accept low ball settlement offers simply to make ends meet.

The search for settlement funding seeks to alleviate this stress by allowing plaintiffs to access the value of their potential settlement and endure the many months that inevitably elapse as their attorneys seek just compensation under the law.

Settlement Funding Contracts are Unique

Also known as lawsuit loan contracts, settlement funding transactions are unique investment vehicles for “lawsuit lenders”. Lawsuit loans are not actually loans at all. The difference between personal loans and lawsuit loans lie in their structure. While personal loans imply repayment at some future time, settlement funding deals are advances on potential recoveries. They are only repaid from settlement proceeds and are contingent upon a successful outcome. This is referred to as non-recourse funding. If plaintiffs lose their cases, the lawsuit advances are not repaid. The unique nature of these vehicles actually makes the search for settlement funding relatively easy.

Settlement Funding Companies

Money spends regardless of its source. Accordingly, the search for settlement funding begins and ends with your choice of a settlement funding company. The lawsuit loan process is mostly similar between companies. Each will require a screening phone call to see if a particular case is a good candidate for funding. Once a case is pre-qualified for lawsuit funding, companies will compile documents from your attorney and send them to their underwriting department.

Lawsuit loan underwriting seeks to determine the likelihood of success of a particular lawsuit. Liability, damages and available insurance coverage are all analyzed by settlement funding underwriters in accordance with the needs of their overall investment portfolio.

When a case is approved, settlement funding contracts are drafted and forwarded to the client and counsel. Once executed, the case is “funded” via overnight check or electronic bank transfer.

Beginning the Search for Settlement Funding

While the process is the same, settlement funding costs can vary greatly. Lawsuit funding exists in an unregulated marketplace in many jurisdictions. This means lawsuit funding companies can charge whatever they want. The search for settlement funding begins with a successful lawsuit loan application. It ends with an understanding of how much it will cost.

For this reason, plaintiffs help themselves with lawsuit funding by shopping for the best terms. These include not only the lawsuit loan rates that are charged, but also understanding how the rates are calculated on the contract amount (simple vs. compounding lawsuit loan rates). Competitive settlement funding rates should be around 18%-20% every six months.

Additional fees charged on settlement funding contracts are another important consideration. Funding companies customarily charge origination, processing, underwriting, monitoring and other fees in addition to the rate. The search for settlement funding can be accomplished in the best way by minimizing these fees whenever possible.

Getting Started

Simply put, the search for settlement funding is the search for the best deal. While there is abundant information available online, the best way to search for settlement funding is to reach out and ask questions. Once the best terms are found, your search for settlement funding is well on its way.

Why Choose Fair Rate Funding

You obviously have a choice in who you use for legal funding. We offer:

• Simple and Easy Process – Approval only on strength of your case.
• Risk – Free Proposition – Only repay if you win your case.
• Rapid Approval and Funding – Approvals often within 24 hrs.
• Up Front Pricing – Absolutely no hidden fees.

Apply Now

Litigation Finance and Lawsuit Funding Differences Explained

Lawsuit loans, settlement loans, litigation finance and lawsuit funding – these are common specialty finance terms. What do they all mean? Are there any differences? In this post, we explain the difference between these terms and examine their importance in the legal landscape.

Common Terms but Expected Confusion

In the last couple of decades, more than a few specialty finance vehicles entered the marketplace. Nowhere is this more true than in the area of legal finance. Since the goal of all financial products is the investment of capital designed to return a profit, legal finance products share in this goal.

Unfortunately, and perhaps the “newness” of these products leads to confusion regarding the various terms used to describe this niche area. For example, legal funding has come to mean the advancing of litigation costs to law firms. It can also mean advancing funds to clients to meet monthly expenses while they wait for their cases to resolve. Adding to the confusion are the plethora of terms used to describe these vehicles. These might include:

• Lawsuit funding
• Lawsuit finance
• Litigation funding
• Litigation loans
• Litigation finance
• Lawsuit loans
• Settlement loans
• Pre-settlement loans
• etc.

For this reason, we find two major categories of lawsuit finance. First, are financial instruments which provide support to law firms engaged in practice which require capital to represent their clients properly. Second, are transactions which help existing plaintiffs themselves, not necessarily their attorneys. We examine both in more detail below.

Litigation Finance

To “finance” something is to use funds to pay for business activities and purchase products or services, and/or investment. Payment of these business activities is actually an investment in the business’ future. In other words, financing is using money today in an effort to increase profit in the future. It leverages the anticipation of future profit by pledging a portion of it to begin business projects immediately. It allows businesses to utilize funds now, thus allowing companies to pay for expenses they wouldn’t ordinarily be able to afford.

Financing is important in every economy. Not only does it allow businesses to serve more customers more rapidly but it also creates a business out of providing funds to businesses. Since some market participants have a surplus of money looking for a return, they can lend part of that surplus to already profitable ventures and make money on that surplus over and above what would otherwise be available in the market.

Litigation Finance Funds Lawyers

Thus, we can use “litigation finance” and similar terms to describe the lending/advancing of money to legal practices. Litigation finance is the realm in which banks and other lenders offer working capital to law firms with high overhead.

Mass Tort Lending

Mass torts happen when there are multiple plaintiffs who sustained an injury from the single tort of one or more defendants. These often involve pharmaceutical or other products with a large customer base. Mass tort legal finance offers financial support to mass tort firms who invest money and time pursuing cases on behalf of a large number of plaintiffs with similar claims. These might include current mass tort litigation such as talc, Roundup, trans-vaginal and hernia mesh and others.

Sometimes these cases become class action lawsuits where plaintiffs are grouped as a “class” if most facts which give rise to the claim are similar. Class action lawsuits are when one of the parties in a lawsuit (plaintiff) is a group of people who are represented collectively by a member or members of that group. The “class action” case is designed to streamline the litigation process since common facts are litigated as a group. This avoids the need to try similar facts over and over again in state courts.

The large amount of plaintiffs means there is a great deal of money at stake. Because of this, lawyers are incentivized to spare no expense in pursuing justice. This means they are very costly to litigate in terms of time, expert fees, and other costs, since many plaintiffs reside in multiple jurisdictions. Since there is a great deal of potential return, lenders are eager to finance the litigation. This is especially true if bellwether trials have been successful and the firms they finance have extensive experience in the realm of multi-district litigation.

Portfolio Funding

Yet class action litigation finance is not the only type of litigation finance. Plaintiff firms with more traditional personal injury and other case types are also prime candidates for litigation lenders. This area is often referred to as portfolio financing since lenders utilize an existing portfolio of cases when deciding whether to approve a firm for funding.

The need for litigation finance comes from the inability to accurately predict cash flows in civil cases. Civil legal system delays vary from state to state and county to county. This means law firms are unsure when cases will resolve. Because most operate on a contingency fee basis (meaning they are paid fees only when a case is resolved), cash flows are unpredictable. Litigation finance allows these firms to pay overhead while cases progress, resulting in a more consistent revenue climate from which to base future decisions upon.

There can be no doubt litigation finance is a valuable resource for plaintiff firms who:

• have extensive experience in a particular area of law
• have large overhead
• have a history of successful outcomes

When the above exist, firms have little difficulty finding lenders willing to advance money in anticipation of future revenue streams.

Lawsuit Loans Fund Plaintiffs

There is one main difference between litigation finance and lawsuit funding. Whereas litigation finance financially supports law firms in their representation of clients’ multitude of cases, lawsuit funding is the practice of providing support for individual cases. Lawsuit funding is also known as:

• lawsuit loans
• settlement loans
• plaintiff funding
• pre-settlement funding
• case loans
• legal loans
• lawsuit advances
• case advances, etc.

In contrast to litigation finance, lawsuit funding supports plaintiffs themselves as they must wait out a long, drawn out litigation process. These are not business to business transactions. Instead, plaintiffs sell a portion of their lawsuit proceeds prior to resolution. In return, the funding company provides cash to pay for all types of expenses. These might include rent, transportation costs, medical treatment, utilities, old debts and more.

Companies offering lawsuit loans assess the merits of the case and the likelihood of a favorable outcome. They then offer a loan based on their evaluation, which the plaintiff agrees to repay after the case is settled or a verdict is reached.

In fact, since plaintiffs sell a future “asset”, the money they receive is theirs to do with as they wish, there are no restrictions on its use. Lawsuit funding for plaintiffs can be further categorized as plaintiff funding, surgical funding and case cost funding.

Plaintiff Funding

Plaintiff funding is a relatively recent business practice which began in the late 1990’s. Plaintiffs often face financial strain during a lawsuit due to medical bills, living expenses, or loss of income. In many cases, clients ask their lawyers for advances. But most states prohibit the practice of lawyers advancing clients money prior to settlement. The need still remains, so lawsuit loans are the use of third parties (funding companies) to fill this need by providing plaintiffs with upfront cash to alleviate financial pressures.

Surgical Funding

Surgical lawsuit loans involve the use of the money to pay for needed medical treatment. In some states, medical treatment is not covered by insurance. In others, no-fault insurance limits are woefully inadequate to provide the necessary treatment. Plaintiffs without sufficient coverage must secure some other means to pay for medical care. These might include letters of protection, utilizing health care coverage, or surgical funding.

The way surgical lawsuit funding works is this:

• Plaintiff contacts a lawsuit funding company with experience in this area.
• The company contacts the medical provider and secures a cash price for the procedure (what the provider is willing to accept as payment for services if the payment is immediate)
• Plaintiff executes a lawsuit funding contract for the treatment costs.
• Company pays medical provider directly.
• Plaintiff’s counsel places the funding contract as a lien on the file to be paid at the case’s conclusion

Surgery loans allow plaintiffs to secure medical treatment that might not be otherwise available. They also have the ancillary benefit of increasing the settlement value of the case since surgery illustrates the severity of plaintiff’s condition. Because of this, lawsuit loans for surgeries are common in many personal injury practices.

Case Cost Funding

Although not as common, some lawsuit funders will advance money to pay for expenses on a particular case. While this might be considered “financing the lawsuit” as we explored in the litigation finance section above, it can be distinguished by the fact case cost funding only deals with one particular lawsuit/claim.

Case cost funding typically arises when large expenditures are necessary to litigate the case properly. Often, expert fees are a major expense in pursuing medical malpractice, legal malpractice or even personal injury claims with extensive injuries. Attorneys and plaintiffs utilize case cost funding to “finance” these expenses and bear their cost at the case’s resolution.

Litigation Finance and Lawsuit Funding Takeaways

Litigation finance and lawsuit funding deal with the advancing money for pending litigation. Litigation finance deals with supporting law firms in their quest for justice. Its application is toward multiple cases within a legal practice. By contrast, lawsuit funding financially supports individual parties in specific lawsuits. Because the terms litigation finance and lawsuit funding (and similar terms) are used often interchangeably. This can lead to confusion. We hope this post provides clarification of the differences between the two.

Thank you for your interest in litigation finance and lawsuit funding.

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Uncovering How Pre-Settlement Funding Works

Pre-settlement funding works for plaintiffs by providing immediate financial relief to litigants. In this post, we examine how pre-settlement funding works, why it’s important, and how to secure lawsuit funding on your particular lawsuit.

Settlement Funding Basics

Settlement funding contracts are specialty financial transactions where plaintiffs pledge a portion of their future lawsuit proceeds in return for immediate cash. When legal system delays cause financial strain, plaintiffs turn to lawsuit funding to bridge the gap between filing a lawsuit and ultimate resolution of the claim.

Settlement Funding Structure

The way pre-settlement funding works is two parties (plaintiff and funding company) enter into an agreement where part of the lawsuit settlement is transferred to the funding company. In return, a plaintiff receives a lump sum or periodic lawsuit loan payments to use at his/her discretion.

Although these deals are referred to as “lawsuit loans” or “settlement loans”, they are not technically “loans” in the traditional sense. Loans imply repayment of principal and interest at some point in the future. Lawsuit “loans” are structured as a transfer of property rights. They are the sale of future proceeds. Because of this, settlement funding is only repaid from the recovery of damages. If the lawsuit is not successful, what the lawsuit funding company purchased (future recovery) doesn’t exist so the advance is not repaid. Further, the company cannot pursue a plaintiff personally for repayment.

Pre-Settlement Funding Cost

Settlement funding cost varies from one company to another so it is wise to shop for lawsuit loans diligently. When shopping, be sure to compare lawsuit loan rates but also be aware of how the rate is applied to the advance amount. Companies will generally charge either a simple interest “rate” or compound the rate monthly. The best lawsuit funding companies will offer competitive rates. Reputable lawsuit loan companies will answer all of your questions regarding pricing right over the phone.

The way pre-settlement funding works is that repayment depends upon how long a case takes to successfully resolve. The longer the lawsuit drags on, the more money is due. The good news is that repayment amount are generally listed within the contract. Lawsuit loan best practices dictate that the terms, rates, and repayment amounts be clear on the funding document.

Why Pre-Settlement Funding Works This Way

Pre-settlement funding transactions are designed differently than traditional loans for a reason. Traditional loans are regulated and charges are often capped at a pre-determined amount. Lawsuit loans are not repaid if the case is lost. Thus, most lawsuit loan losses are total losses of investment capital. If costs were capped under state usury laws, funding companies couldn’t realize a profit. Since lawsuit loan are not loans, pricing can be higher than regulated loan pricing. Pre-settlement funding works the way it does so companies can price in their risk of loss outside state usury laws and still stay in business.

Why Pre-Settlement Loans are Important

The power of lawsuit loans is that they give plaintiffs the financial staying power to endure a long, drawn out litigation process. Delays in justice are simply a feature of the system since only limited resources are allocated to resolve disputes between parties. These delays often cause plaintiffs financial strain, especially if plaintiffs are injured and no longer able to work. Financial stress causes many plaintiffs to settle for less than they deserve simply because they need to keep expenses current. Avoiding the need to accept low-ball settlement offers is the very reason pre-settlement works for plaintiffs. By easing immediate financial concerns, lawsuit loans allow attorneys to litigate the matter properly and to its proper conclusion – just compensation for plaintiffs.

How to Secure Pre-Settlement Funding

Allowing pre-settlement funding to work for you is pretty easy. The lawsuit loan process begins with an application. After an initial screening, and your case pre-qualified for funding, lawsuit funding professionals will contact your attorney and request relevant documentation. Once received, the documents are reviewed and a discussed with your lawyer. Lawsuit funding underwriting is a niche area of risk management. Lawsuit loan underwriters use the information gathered and make a conservative estimate of the likely settlement value of your case. How much of a lawsuit loan you can get is based upon this determination. Afterwards, the company will make you an offer, which you are free to accept or refuse.

If you decide to accept the offer, you simply execute the funding documents and return them. Your attorney will also sign off on the contract. When all the funding documents are received, you receive your money via overnight courier or electronic bank transfer.

Making Pre-Settlement Funding Work for You

To learn more about lawsuit funding, simply give us a call or contact us online. A live representative will answer/contact you and answer any questions you might have.

Why Choose Fair Rate Funding

You obviously have a choice for legal funding. We’ve been in the legal funding business since 2007 and offer:

• Simple and Easy Process – Approval only on strength of your case.
• Risk – Free Proposition – Only repay if you win your case.
• Rapid Approval and Funding – Approvals often within 24 hrs.
• Up Front Pricing – Absolutely no hidden fees.

Give us a call and learn about your options. We are here to help and are at your service.

Thank you for your interest in pre-settlement funding.

Apply Now