What Lawyers Should Know About Lawsuit Settlement Funding
On occasion, we are asked what benefits a lawsuit settlement funding company can offer personal injury attorneys whose clients need funding. 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.
Even the best lawsuit loan companies sometimes meet resistance from law firms when their clients apply for a cash advance. The reasons 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 their representation.
Below, we examine the top 5 things attorneys should know about the lawsuit funding business in an effort to address some of these concerns.
Not All Lawsuit Settlement Funding Terms are Oppressive
The lawsuit settlement funding industry has evolved since its inception approximately 15 years ago. Not only have case 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 unstable economic climate.
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 settlement funding companies who have different portfolio objectives and must charge more expensive “rates” and fees to meet their objectives.
Rate is of Paramount Importance when Settling the Case
Lawsuit settlement 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 pre-trial settlements make sense and are in the best interests of all parties. 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 of whom are attorneys themselves, are intimately aware of this fact.
Therefore, lawyers should know that lawsuit funding liens rarely hinder settlement negotiations. In fact, many steps are taken to ensure this unfortunate circumstance remains the exception rather than the rule. One such example involves how much lawsuit funding is available in the first place. Most funders limit a “lawsuit loan” to 10% of the estimated value of the case. With today’s rates and fees, a lawsuit cash advance on pending case fails 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.
Lawsuit Funding Applicants Need Attorney Cooperation
What lawyers should know about lawsuit funding is that the whole process of offering money against the future proceeds of a legal proceeding depends on attorney cooperation. 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 lawsuit loan approval. Once approved, attorneys must then acknowledge the lawsuit settlement 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.
Most funding operations will not 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.
Clients Need Speed
Lawyers should also know most lawsuit funding 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. This 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. The approval process moves quickly. The funding company does its job and the client gets much needed relief as soon as possible.
Similarly, approvals for many lawsuit settlement funding applications, 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 settlement funding underwriters do whatever is necessary to keep the conversation focused on only the most material considerations.
Keeping it “short and sweet” helps funders, attorneys, and clients alike by keeping the process moving along. The sooner the case can be underwritten, the sooner the client can get the help he needs. The attorney gains the reward of a grateful client and another task deleted from his list.
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Lawsuit Settlement Funding is a Business
Attorneys who have clients wishing to obtain money from litigation finance professionals should keep in mind the business of offering legal loans is exactly that – a business. Like any other business, there are origination costs in the form of advertising or other marketing efforts, cost of inventory (money), and administrative expenses just to name a few. Further, it is the goal of any service based business to provide the service and turn a profit.
I mention this because many attorneys feel the need to negotiate the terms of a lawsuit funding transaction AFTER the case settles. Understandably, plaintiff’s counsel will try to negotiate all liens if it increases the chance to settle a case. However, some attorneys want to negotiate the payment terms after a settlement is in place simply because they feel they can.
The appropriate time to negotiate is before an agreement is executed, not after. Further, offering the lawsuit settlement funding company its money back, for example, is not operating in good faith. It is simply good business to allow a business to turn a profit. As we all know, a win – win scenario is the goal. If any business is not allowed to make money, it will soon be out of business. Lawsuit settlement funding is no different.
Fortunately, the pre-settlement finance business is becoming more efficient every day and offers clients the ability to weather the financial storm while the case is being litigated. In other words, lawsuit settlement funding is part of the personal injury game. A game that keeps reinventing itself from year to year. Though many changes arise, the main goal remains the same – to help clients achieve justice.
Thank you for your interest in the lawsuit settlement funding business.
