We’ve all seen the ads. “Get the money now! Someone is offering consumers a way to cash out an annuity, structured settlement, or even lottery winnings, and get their money so they can use it now rather than having to wait years for it. get the benefits.
Litigation funding or court loans work the same way, with one big difference. They allow claimants to have access to a portion of the value of their business before the final decision becomes a liquidated amount. In return for a portion of the claimant’s eventual award, finance companies engage in lawsuits by advancing funds in the present in anticipation of a positive future outcome for the claimant.
The lawsuit financing industry is only about 20 years old, but it has become widespread. More and more litigants are turning to finance companies to cash in before cash out. Lawyers new to personal injury can start here to learn how litigation finance works and if it works for their clients.
Is it a “loan” in court or is it an investment?
Although often referred to as lawsuit loans, these financing transactions are not loans at all. They are non-recourse, which means that the plaintiff will not have personal responsibility for the transaction, even if the plaintiff loses the case. If the case is settled or if the plaintiff obtains a judgment, the litigation finance company is “paid off”, or rather recoups its investment in the product plus added value or interest. A plaintiff who loses a lawsuit is almost never required to reimburse the litigation funder.
Of course, litigation is never a sure thing, the decision of a litigation finance company to enter into a pre-settlement transaction requires careful consideration. Rather than focusing on the client (since it is not a loan, we hesitate to use the word “borrower”), this reflection focuses on the many variables that can affect the outcome of the dispute.
Where does the money come from?
The litigation funder solicits investment funds from individual investors and interested companies, sometimes to be allocated to specific disputes with a high monetary value; sometimes to contribute to a pool from which the finance company draws to pay advances in more modest cases.
How far ahead can an applicant expect?
There are many reasons why a lawyer may have included a claim for $ 1 million in a lawsuit. Many of these reasons have little or nothing to do with the actual value of the lawsuit or the damages suffered by the plaintiff. Despite the strong dollar demand, a consumer loan transaction will likely be in the range of $ 5,000 to $ 10,000, although it may go higher. Most complainants use the money to overcome a financial barrier, pay for living expenses, or cover medical treatment.
Should we take legal action?
There has to be a viable claim for the investor to be able to exploit it. The most effective way for the litigation finance company to determine whether the claim is worth it is to review documents that have been filed with a court. This means that the lawyer has assessed the cause of action, determined that the plaintiff has suffered damages, that the defendant can be held liable and that a settlement is likely or a judgment can be recovered. The more established the claim, the easier it is for the litigation funder to ensure that the value of the claim is worth it.
In rare circumstances, a lender will enter into a financing transaction with someone involved in a class action lawsuit or who has filed a claim in a bankruptcy case such as the Boy Scout abuse case or some other type of proceeding such as those designed to compensate victims of forest fires caused by PG&E transmission lines in California. These claims often require full documentation that a finance company can use to assess the claim.
How long does the application process take?
The litigation loan can take anywhere from 24 hours to a week to process, and sometimes even longer. Personal injury litigation is complicated. Some complainants are playing an active role in the case and demand constant updates. Others find it difficult to grasp the complexities and are content to know a little more than having a lawyer who has filed some sort of lawsuit. The litigation loan company should go beyond the plaintiff’s request to inquire about the nature and potential of the lawsuit.
The cooperation of the plaintiff’s lawyer more than any other factor will determine how quickly a litigation finance transaction is approved. They are expected to provide copies of the lawsuit, discovery and anything else the underwriter needs to determine if the case is suitable for the business purposes. The longer it takes for a lawyer to deliver documents to the litigation finance company, the longer it takes to make an underwriting decision (and the more the lawyer and the litigation finance company will suffer from phone calls and litigation. customer emails in the meantime). But, once the loan company obtains sufficient documentation, the underwriting decision comes quickly.
Are Litigation Loans Good For The Claimant?
Generally, lawyers are in favor of loans. Many clients turn to legal lenders when they encounter a bad patch on the road. Often, bodily injury claimants suffer from medical issues and unemployment. These stressors cause financial resources to dry up quickly and often lead the claimant to consider a quick settlement before the case has fully developed. An injection of money from a legal loan can be the difference between accepting the defendant’s first offer or waiting for an amount that more accurately reflects the claim for damages in the case.
Does it matter how the applicant intends to use the money?
No. Customers can use the money for whatever they want. These are not traditional loans that require repayment. Rather, they are almost exclusively non-recourse transactions. As a result, the litigation finance company has little interest in why the plaintiff wants the money. Likewise, the subscription decision is not based on the solvency of the client since the funder of the dispute will turn to the proceeds of the settlement or a court decision and not the client directly for reimbursement.
What Types of Business Make Good Litigation Funding Transactions?
Personal injury cases, such as traffic accidents and locals’ liability, are the bread and butter of litigation funding. Some companies venture into medical malpractice, product liability, employment discrimination and even whistleblower actions. The larger and more complex the case, the longer the investigation and the time it will take to make the decision to fund an application. But then, complicated cases have the potential to generate a better return on investment.
Are litigation loan transactions regulated?
For the most part, they are unregulated. The little regulation that exists is the result of a few court cases brought by customers unhappy with the terms after the fact. Some state legislatures are looking into the matter. Congress and the Consumer Financial Protection Bureau have yet to weigh in significantly, although with the growing popularity of these transactions, it is likely only a matter of time.
© 2021 Copyright Tribeca Lawsuit LoansRevue nationale de droit, volume XI, number 334