When a person is involved in a lawsuit and being represented by an attorney, they may apply for a lawsuit cash advance. A lawsuit cash advance is a monetary advance against a pending or settled claim. The term pre settlement funding best describes an advance against a pending suit; and post settlement funding describes an advance against a case that has settled or a judgment has been awarded
To fully understand how rates are calculated is to better understand this asset class. Lawsuit cash advances were first afforded to plaintiffs over 10 years ago. This type of lending is sometimes referred to as betting or investing in lawsuits. The practice of investing into this asset class was first established in the late 1990’s after a doctor realized his patients needed medical treatment but had no financial resources or insurance to cover their expenses.
When an investor decides to provide an advance against a case they are essentially making a wager that the lawsuit will have a positive outcome. While some people referred to this as a lawsuit loan, it’s quite the opposite. Because lawsuits are all unpredictable there is always a chance that a case could be lost during the course of a suit. If an investor provides an advance to a client and the case is lost, the investor will lose the investment. The investor gives up his right to recourse.
Legal advances are generally made against personal injury claims. When a person files a personal injury claim with an attorney, they may be approved for an advance against their suit. Prior to the approval process the investor will evaluate the case. This is important for both the plaintiff and the lender. If during the evaluation stage the investor believes the client will win the case, there is a good chance they will be approved for an advance. If the lender believes the case has merits however there is a chance the client could lose or the case could be significantly delayed, the lender may decide to fund the case at a later date, or deny the client.
The rates on these types of advances will vary depending upon several factors. The first factor is the strength of the case. The strength of the case is determined upon the likelihood the client will win a settlement or judgment. If the case is already settled or there is little question the client will win the lawsuit, the rate tends to be lower. If there are documents that are missing and the lender goes upon the recommendation of the attorney, the rates will begin to increase. If there is a gray area and there is question of whether a client will win compensation, the rates tend to be the highest.
Another factor is the lender. There are dozens of lenders that offer pre settlement funding and post settlement funding. These lenders may be backed by banks, hedge funds, institutional funds or private money (private investors). Because no two lawsuits are the same and underwriters may look at cases differently, there is a good chance the rates may vary from lender to lender.
The type of case can also be a factor within the litigation financing markets. While most companies provide pre settlement funding against personal injury cases, not all are comfortable underwriting certain personal injury cases. For instance, most companies are experienced in evaluating car accident claims but a select few will consider medical malpractice lawsuits. This is because medical malpractice suits are a niche practice area and can be complicated. If you are able to find a company that is willing to finance a medical malpractice suit, the rates will probably be higher than if they were looking at a motor vehicle claim.
Personal injury lawsuits are not the only type of case a lender may evaluate. There are a select few companies that will offer services against commercial litigation claims. These claims are also very complex and can take years before a settlement is reached or a judgment is awarded. They tend to be a riskier investment because there are always the chance the defense may not have the financial means of paying a cash award if they lose the case. These types of cases tend to bare the highest rates within the litigation financing markets.
There is no question that lawsuit funding is expensive. This is because a lender takes the risk with little guarantee. The borrower doesn’t have to have good credit or be employed. If the lender bets on a lawsuit that is lost, they lose their investment.