Maybe you’re mired in a legal battle over a faulty brake on your brand new car. Maybe you were fired for what you consider unfair reasons, or a doctor left a surgical tool inside you, causing prolonged pain and suffering. Whatever the situation, the bills keep piling up, and so does your anxiety.
Over the past 20 years, litigation funding has helped level the legal playing field for many consumers in similar situations.
Initially, litigation funding came from investors supporting law firms for large corporations. Litigation funding has helped attorneys cover day-to-day expenses during protracted and important commercial lawsuits. Litigation funding is now available for small consumer lawsuits such as:
- Personal injury.
- Car accidents.
- Medical error.
- Defective medical devices, pharmaceuticals or other products.
- Employment discrimination, whistleblowers and labor law.
Litigation provides greater access to justice and provided much-needed sources of funding during the recent economic downturn, according to a 2021 Bloomberg Law survey of funders and attorneys using litigation funding.
What is a legal loan?
A court loan does not look like a traditional bank loan despite its name. Instead, the finance company advances a sum to buy a portion of the legal rewards, much like a stock market share. These may also be referred to as “trial cash advances” or “pre-settlement funding.”
“The funder buys a small portion of the expected settlement payout,” says Bradley Braun, chief technology officer at Tribeca Lawsuit Loans, a leading consumer and business funder. “If the seller, aka the plaintiff, loses the case, he owes nothing.”
The finance company is a passive partner and does not control or influence attorney-client discussions or settlement decisions for a case. Depending on the funding partner, the loans can be used for attorney fees and to help keep business doors open or for other legal costs as the lawsuit progresses.
While some consumer lawsuit awards reach the stratosphere, the average personal injury case settles for less than $100,000. The average court loan is $10,000 or less, or about 10% of the case value. The company benefits from the final settlement through various previously agreed means, including fixed fees, monthly interest or another type depending on the case.
Most consumer loans are “non-recourse”, which means that the profit from the investment comes from the proceeds of the deal. If the client loses the case, the finance company cannot ask the client to repay the advance or loan in court.
To be eligible for litigation funding, consumers must have a pending lawsuit. Consumers may hear about funders through search engines, television commercials, or other advertisements. Often complainants contact the funder directly to ask if their case can be appealed.
The person on the other end collects the claimant’s contact information, case description, and lawyer’s name. The 1-800 company may be a direct funder, a litigation funding broker, or a combination of the two. Both offer more choice and healthy competition in the market.
Direct Loans for Lawsuits
Whether it uses its funds or relies on its investors, the litigation funder is a direct funder. Direct lenders control capital and work directly with clients and attorneys to assess cases and close loans.
A direct funder’s staff contacts the plaintiff’s attorney to gather documents and learn more about your case. The funder’s underwriters recommend a loan amount after evaluating the case, and not all cases are accepted for funding. If the applicant agrees, the funder draws up documents regarding fees and tariffs. The parties execute the agreement and the funder transfers the money to their new client.
The process can take as little as 24-48 hours to fund simple, well-documented personal injury cases, although complicated cases and larger amounts take a little longer. The Direct Funder works directly with the consumer and can quickly approve funding decisions after gathering enough information to assess the case.
Loans and Court Brokers
Although they have been commonplace in the area of commercial lawsuit funding for decades, litigation funding brokers are increasingly involved in consumer lawsuits. These brokers match litigation funders with qualified and screened plaintiffs, defendants and law firm candidates. These finance companies are willing to put in the big bucks needed to fund high-stakes litigation.
Because brokers are not well known, consumers are referred to brokers by their lawyers and sometimes even by healthcare workers. Brokers quickly collect quotes from which the consumer can choose. After electronically signing an agreement, funds can be sent electronically. The whole process can take as little as 24 hours.
“Brokers bring us between 10% and 15% of our business,” says Rory Donadio, CEO of Tribeca Lawsuit Loans.
The broker’s value to the consumer is in the real-world connections, with faster access to more finance companies than the average consumer could find by dialing multiple investment companies. Major brokers develop relationships with litigation funding companies to determine their preferences for specific US states and types of cases. For the consumer, brokers can find the cheapest companies with generous underwriting conditions.
Brokers charge an average of 15%, which is a little more than a real estate broker’s fee. The investor pays these fees after the seller has received his money.
Depending on the circumstances, companies such as Tribeca Lawsuit Loans act as direct lenders and brokers. When a transaction promises to be large or involves a file that is not usually funded, Tribeca seeks an investor who can take on the responsibility or is willing to enter into a joint venture.
Disputed Loan Warnings
It can be difficult for the average consumer to know whether they are working with a direct funder or a broker. Currently, few legislatures have attempted to regulate direct finance companies, and no state requires licensing or registration as a litigation finance broker. Direct funders and brokers are not required to disclose their role to consumers.
“Some consumers may not find out they worked with a broker rather than a direct funder until they sign the paperwork,” says Donadio.
This model differs significantly from other consumer-facing brokers. An insurance broker owes allegiance to the insurance buyer versus the insurance company, while the stockbroker owes a duty to his client. The roles of real estate brokers are contractually defined with respect to buyer or seller relationships when buying and selling homes.
This may raise concerns about the broker’s fiduciary duty — the legal obligation to act in the best interests of the beneficiary. It is not always clear whether the beneficiary of the loan broker is the consumer or the finance company (or the investor).
When considering a company offering a litigation loan, ask if the company will act as a broker or direct lender and check the business online. Whether the company offers an interest rate or fee structure, ask for a quote that includes all fees. Ask if the interest is compounded (interest charged monthly on the total amount owed). Also, make sure the funder is working on your behalf and not someone else’s.
Litigation funding levels the playing field for the average consumer. It is essential to increase the chances of a fair fight, whether it is an insurance company, a company or an industry with sufficient resources.
“Pre-settlement funding allows the litigant to stay in place financially,” says Adrienne Tabag, Creative Director of Tribeca Lawsuit Loans. As a result, consumers can “finish their business with more freedom and less pressure to settle their business for less than it’s worth”.
Tribeca Lawsuit Loans is a pre-established legal finance company that provides funds to individuals as well as law firms. If you’re involved in a lawsuit and you’re having financial hardship, we can help you get the compensation you deserve.