Lawsuit Loans Work to Provide Justice
Lawsuit loans are a relatively new specialty financial product in which plaintiffs sell a portion of their future settlement proceeds in advance. In return, lawsuit lenders receive an agreed upon amount of the settlement in accordance with the lawsuit loan contract terms. In this post, we look at how lawsuit loans work and what benefit they provide to litigants.
Why Lawsuit Loans Work
Civil litigation can be a time consuming endeavor. Due to case backlog and limited resources, civil courts simply cannot keep up with the amount of cases on the docket. For these reasons, plaintiffs can expect many months to several years to elapse before they receive any compensation.
Further adding stress to the situation is the fact that personal injuries can cause plaintiffs to lose their income and face unanticipated costs such as medical and other expenses while they wait for their cases to get before a judge/jury.
Insurance companies which regularly defend negligence cases, know the situation well. They often offer less than fair compensation hoping plaintiffs’ financial condition will prompt them to accept the offer and close out the case. Lawsuit loans work to combat these practices.
With the lawsuit loan proceeds, plaintiffs pay for such things as:
- Living expenses
- Auto loan or transportation payments
- Mortgage loan or housing payments and
- Medical treatment and/or surgery
The truth about lawsuit loans is that they can be used for any reason whatsoever. Any expenditure which benefits the plaintiff can be a worthwhile use of the funds. After all, it’s the plaintiff’s money – they are just getting a portion of it prior to the case’s conclusion.
Lawsuit loans work because they help plaintiffs pay for their immediate needs. This helps avoid the need to accept low-ball settlement offers or having to go back to work before plaintiffs are reasonably able.
What Lawsuit Loans Are
Lawsuit loans are a partial sale of future settlement proceeds. Lawsuit loan repayment occurs when the case is resolved and must be the source of repayment under the contract. In other words, if the case is not successful, the lawsuit loan does not need to be repaid. This unique feature of lawsuit funding deals are often referred to as non-recourse funding. That is, the lawsuit lender has no recourse against the plaintiff personally for repayment.
What Lawsuit Loans are Not
Lawsuit loans are NOT loans in the traditional sense of the word. Traditional loans imply repayment at some point in the future. The time for repayment may vary, but the implication is that the loan will be repaid. As stated above, lawsuit loan repayment only occurs if a lawsuit is successful. Since repayment is dependent upon a positive resolution (settlement or other recovery), lawsuit loans are not actually loans.
The reason why lawsuit loans work this way is because of the pricing. Lawsuit loan cost is often calculated by applying a percentage rate to the principal over time. Use of a percentage rate is the only similarity between loans and lawsuit loans. Yet, lawsuit loan rates are generally higher than car loans or mortgages. However, the increase in risk (that the case must be successful) is the reason why charges must be higher. Without this increase, lawsuit loans would not be profitable enough to justify businesses to enter into the market and provide this service to plaintiffs.
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How the Lawsuit Loan Process Works
The lawsuit loan process is simple and occurs in three general steps:
- Application – the plaintiff contacts the funding company and inquires whether a lawsuit loan might be a viable solution. After a discussion of rates, fees, repayment and other issues, the applicant provides details of the case and attorney information. The company contacts the attorney and requests various documents.
- Underwriting – the underwriting process begins when requested paperwork is received and reviewed. If the lawsuit loan underwriter has any additional questions, they are presented in a phone conference or through email correspondence.
- Approval and Funding – Once approved, a contract is forwarded to plaintiff and the attorney. When executed and returned, the money is advanced to the client via overnight courier, or electronic bank transfer.
After the money is received, plaintiff’s attorney is sent a certified letter with a copy of the contract and repayment terms. The attorney normally places the agreement with the other liens in the file. Upon a successful recovery. The lawsuit loan is repaid and the transaction is complete.
Where Lawsuit Loans Work Best
Lawsuit loans work best when no other sources of immediate funds are available. Clients generally turn to lawsuit loans when they have nowhere else to turn. Due to cost, lawsuit loans are generally a last resort. That doesn’t mean they are a bad idea. Rather, all more cost effective options have simply been explored and exhausted.
Takeaways
If you’ve suffered losses or physical harm because of someone else’s negligence, you may suddenly need funds to cover emergencies like medical bills and lost wages. Until your lawsuit settles, you may struggle to meet your daily financial obligations.
Most victims of personal injuries tend to wait for months or even years to receive their settlement. You may be out of work during such moments because of the injuries. Thus, it can be challenging to get going financially. This is where lawsuit loans work best.
Thank you for your interest on how lawsuit loans work.
