Lawsuit Loan Contracts – All You Need to Know
Lawsuit loan contracts are unique financial instruments which advance money to plaintiffs who are involved in pending litigation. Read below to learn more or sign up below to get a copy of the “Anatomy of a Lawsuit Loan Contract,” a discussion of typical lawsuit loan contract provisions and their implications.
Lawsuit Loan Basics
Lawsuit loan contracts are specialty finance transactions where lawsuit “lenders” advance money to plaintiffs involved in pending lawsuits. Many plaintiffs encounter financial difficulty while their cases move through the legal process. Legal system delays contribute to the problem as many plaintiffs must wait many months or several years before their cases resolve. Lawsuit loans attempt to bridge the gap between the event (accident, discrimination, wrongful termination, malpractice, etc.) and compensation. They also level the playing field between financially strong insurers which defend most of these cases and individual plaintiffs who are often forced to accept low-ball settlement offers due to financial strain.
Lawsuit Loan Contract Structure
The unique nature of lawsuit loans allow for flexibility that would be otherwise unavailable through lawsuit loan alternatives. This is because lawsuit loan contracts are not actually loans in the traditional sense of the word.
Traditional loans imply repayment at some point in the future and often require periodic payments. Lawsuit loans are structured as an assignment of property rights in the potential future proceeds of a case. Lawsuit loans transfer property rights in part of the proceeds and are more similar to the sale of any other type of property than they are loans.
Due to this structure, lawsuit loan are NOT repaid if the lawsuit should ultimately fail. Repayment must come from the settlement or recovery. If plaintiffs “lose” their case, what the lawsuit funding company purchases essentially becomes worthless. Funding companies cannot pursue plaintiffs personally for repayment.
Lawsuit Loan Pricing
Lawsuit loan contract structure means that funders can charge whatever they want for their services. A seller of any asset can accept any amount from a willing buyer. Because they are not loans, lawsuit funding deals lie outside most state’s usury laws. This fact results in criticism about the way some lawsuit funding companies handle their pricing models.
The good news is that plaintiffs are free to choose to shop for the best lawsuit funding deals. Free market factors force many funders to lower their pricing to capture market share resulting in more favorable terms for clients.
Lawsuit Loan Common Provisions
Common contract provisions include the purchase price, right of rescission, attorney acknowledgements, irrevocable instructions to counsel and others. For more in depth analysis on lawsuit loan agreements, request a copy of Anatomy of a Lawsuit Loan Contract on this page.
Takeaways
If you have any questions regarding lawsuit loans and/or Fair Rate Funding, please give us a call or contact us online. Or request a copy of Anatomy of a Lawsuit Loan Contract below. We are here to help and are at your service.
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