What Happens if You Lose Your Lawsuit?
Lawsuit loan companies love to proclaim that if you lose your lawsuit, you don’t have to repay a lawsuit loan. This is true. In this post, we examine why there is no repayment if a lawsuit funding recipient loses the lawsuit.
What is Lawsuit Funding?
Lawsuit funding (also known as lawsuit loans, settlement loans or settlement funding) is the advancing of money to plaintiffs prior to their lawsuits being resolved. Sometimes called “lawsuit advances”, lawsuit funding companies advance money to plaintiffs who are financially struggling. They are often a “last resort” for plaintiffs who’ve often exhausted all other avenues of securing funds. This is often true because lawsuit loan costs are generally higher than personal loans.
Lawsuit Funding Structure
Lawsuit loans are a transfer of property rights in the future proceeds (recovery) from a lawsuit. Because of this, lawsuit loans are not traditional loans which imply repayment at some point in the future. Instead, the funding company purchases a portion of the recovery prior to settlement. It is for this reason that no repayment is due if you lose your lawsuit.
Why Lawsuit Loans are Structured This Way
The truth about lawsuit loans is that they must be structured this way. Future lawsuit proceeds are speculative in nature as many viable lawsuits are lost without any recovery. In order for businesses to profit, the risk must be reflected in the pricing. This would be impossible to accomplish if traditional loans were offered at traditional lending terms. Most state usury laws cap interest costs well below competitive pricing for lawsuit loan contracts.
If you lose your lawsuit, the lawsuit lender is not repaid under the agreement. This added contingency, allows lawsuit funding companies to justify the additional costs and in so doing, capture the needed profit margin to ensure the business is economically viable.
You Don’t Repay if You Lose Your Lawsuit
When a lawsuit lender purchases a portion of your case, it speculates that you will receive some monetary compensation for your damages. The company is your partner in a sense, since under the terms of the agreement, repayment must come from the lawsuit proceeds themselves. This is known as non-recourse funding. The lender has no right to pursue you personally for repayment.
As stated above, the company buys a portion of your recovery. If you should lose your lawsuit, what the company purchased is essentially worthless. And since repayment must come from the proceeds, the lawsuit funder must take a loss on the investment.
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Lawsuit Loan Structure Allows for Flexibility
The unique nature of lawsuit loan structure increases flexibility for lawsuit investors. First, it allows funders the ability to assess risk and price it accordingly. It also allows investors to choose cases which would fall outside the realm of typical “fundable” lawsuits.
Flexibility in Pricing
Losing a lawsuit means a lawsuit funding investment is also lost. Factoring the risk of loss is one of the skills lawsuit funding underwriters possess. Because lawsuit funding is specialty finance and largely unregulated in the jurisdictions where it is most prevalent, companies can evaluate investments on a case-by-case basis to determine “fundability”. If the situation calls for an increase in pricing to offset additional risks, the terms are adjusted accordingly.
Flexibility in Case Selection
Personal loans and lawsuit loans are different because if you lose your lawsuit, you don’t repay the advance. As stated above, that difference allows flexibility in pricing. And that pricing flexibility allows companies to consider more cases for funding.
Consider plaintiffs with products’ liability, medical malpractice, and legal malpractice cases. These cases are generally riskier because they are often more complicated and costly to litigate. Some companies might consider loss ratios too risky for funding. Flexibility in pricing is one mechanism to offset settlement loan risk – allowing plaintiffs to tap into the potential value of their lawsuits.
Learning More About When You Lose Your Lawsuit
To learn more about the unique nature of the lawsuit funding business, you can access the library of articles on the Fair Rate Funding Blog. You can also visit our Frequently Asked Questions page.
Or, you can 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 in who you use 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 Fair Rate Funding.
