There are secrets to litigation finance that every plaintiff should know prior to applying for lawsuit funding. Too many plaintiffs rush to litigation finance as the answer to their current cash flow problems without completely understanding the intricacies behind litigation funding. This article should shed some light on plaintiff litigation finance and the secrets that some litigation finance companies use to make money
What is litigation finance?
Litigation finance is not a “loan” but rather it is a cash advance based upon the merits of a lawsuit that provides a plaintiff with sufficient funding to reach the conclusion of the case when the plaintiff will receive his/her fair share of the settlement or verdict. Litigation finance companies invest in the lawsuit itself as opposed to advancing money to the plaintiff in the form of a loan. Litigation finance is not based on a plaintiff’s prior credit or bankruptcy status. Other terms used for this type of funding include: lawsuit loan, litigation funding, litigation loan, lawsuit funding, lawsuit finance, lawsuit cash advance, case loan, case cash advance, plaintiff cash advance, litigant funding, pre-settlement loan, pre-settlement lending, pre-settlement cash advance, etc.
How do litigation finance companies make money?
All litigation finance companies are different and charge interest and fees differently. We all agree that litigation finance companies assume a lot of risk due to their investment in the lawsuit as opposed to investing in the plaintiff. The investment is therefore only as solid as the case. We are all familiar with how quickly a good case can get thrown-out or a jury can award a large settlement for a case that we could call “frivolous.” The United States justice system never ceases to surprise us. With that in mind, the investments of litigation finance companies are risky. They must charge relatively high interest rates on the cases that are successful in order to make-up for the unsuccessful cases. Some litigation finance companies use a multiplier instead of an interest rate which is really just a different way of accomplishing the same thing.
Are there other fees associated with litigation finance?
Again, all litigation finance companies are different and charge interest and fees differently. Generally speaking, the answer to this question is “yes.” These fees usually show-up on the contract that the plaintiff’s attorney must sign and are then taken from the settlement upon a successful case. Some examples of these fees include: origination fees, application fees, documentation fee, closing costs/fees, premature payoff penalty etc. These fees are not that different from traditional loans but plaintiffs should be aware of these so they are not blind-sided when they see these fees.
Is litigation finance a different way of getting my settlement?
Litigation finance should not be a substitute for your settlement but rather a raft that helps you stay afloat while your attorney fights for you. Too many plaintiffs apply for litigation finance with the belief that litigation finance is simply a different way to get their settlement money. Assuming you win your case, the amount owed to the litigation finance company varies greatly depending upon the length of time between the date of the advance and the date when you receive the settlement/verdict money. You should exhaust other means of funding first. Some good sources of information about litigation finance are The Funding Exchange and Expert Law (www.expertlaw.com).
As a plaintiff, you should understand litigation finance and the process of securing funding before you apply. If your expectations are set appropriately and you proceed with litigation finance then you will find that it is a saving grace in the turbulent world of litigation. If you apply for litigation finance without a true understanding then you may be disappointed.