Five Things 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 of lawsuit settlement 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 I address the top 5 things attorneys should know about the lawsuit settlement funding business in an effort to address some of these concerns.
The lawsuit settlement funding industry has evolved since its inception approximately 15 years ago. Not only have 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.
lawsuit settlement funding
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.
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 the best interests of all parties are served if the case settles before trial. 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 who are attorneys themselves, are intimately aware of this fact.
Therefore, lawsuit settlement funding liens rarely inhibit settlement. In fact, many steps are taken to ensure this unfortunate circumstance remains the exception rather than the rule. One such example is the limiting of the “lawsuit loan” to 10% of the estimated value of the case. With today’s rates and fees, an advance would normally fail 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.
The whole process of offering money against the future proceeds of a legal proceeding depends on the participation and cooperation of plaintiff’s counsel. 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 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.
I am unaware of any funding operation which will 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.
The majority of 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. Yet that 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. This makes the approval process move quickly so the pre-settlement funding company can do its job and the client can get 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.
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.