The articles describes how Lawsuit Funding companies work. If you are not in small claims court, it costs a lot of money to sue an entity (a person or company). If you need a lawyer it can get very expensive. And if the defendant has the funds to hire lawyer(s) to oppose and delay your lawsuit, it is even more expensive. The legal system generally puts the plaintiff at an inherent disadvantage while attempting to litigate for damages.
Sometimes you want to, or have been advised to, sue an entity – but you just cannot afford to. If the entity is poor, perhaps you should not be suing them. If the entity is wealthy, you can find help to fund your lawsuit.
There are a few ways to fund a lawsuit. You can deplete savings or borrow the money. Neither of these are very attractive because it is often a long, unpredictable road to getting paid after starting a lawsuit. And sometimes you don’t ever get paid. This can be a big risk.
In certain cases, this risk can be minimized. A lawsuit funding company (LFC) might pay for both your expenses and your lawyer. Anyone who is a plaintiff in a lawsuit, and is represented by an attorney, may qualify for lawsuit funding.
If the other side knows you are well funded, they are much more likely to settle with you, or pay you quickly after you get your judgment.
Government agencies, insurance companies, and large corporations named as defendants have greater resources at their disposal to delay and prolong settlement of lawsuits against them. They count on the desperation of the plaintiff to either drop their lawsuit or settle for a fraction of their lawsuit amount, to pay mounting expenses. LFCs can level the playing field so the plaintiff can pursue the case to maximize the settlement amount.
When you are suing because you suffered injury or loss, and are filing a lawsuit to recoup damages, LFCs can help you fund your legal or settlement proceedings. The kind of cases LFCs can fund include personal injury, contract disputes, negligence, copyright infringement, and insurance claims.
After the LFC does their due diligence, they can provide a sum of money (usually a percentage of the total amount of the lawsuit) to be used to cover your personal or commercial expenses, while your case settles in court.
The best part is, a quality LFC can provide you a non-recourse advance. The amount you get is determined by the amount of money you expect to receive from your lawsuit, and the ability of the entity you are suing to make payment on a settlement.
Non-recourse means that this is not a conventional loan. If you win your case and get paid, you must repay the LFC what they lent you, and also pay them extra for their “risk premium”. However, if your case loses, you owe the LFC nothing.
Because of the inherent risks of lawsuit funding, underwriting of cases is especially important. A LFC will look at the merits of your case, the amount for which it is likely to settle, and the ability of the defendant to actually make payment. There are no credit checks, monthly payments, or upfront fees with a LFC.
LFCs work with your attorney to obtain and evaluate all pertinent information relating to your case. Then they quote you how much money they are willing to advance. If everyone agrees, everyone signs, and it’s done deal. After the LFC secures its claim to recover their costs on any payments the debtor makes, you get the money.
If the LFC agrees to invest in your judgment, and pays you, they can pay you some upfront, and the rest as it is needed for your lawsuit. The first money they pay you can be used in any reasonable way. You can pay rent, mortgages, legal expenses, credit cards etc., or as a business owner, to pay wages, business insurance or other capital expenditures.
Lawsuit funding companies fill a vital role, and while they cannot help everyone, maybe they can help you. LFCs can work in almost every state, except where local laws prohibit them.
Lawsuit Funding Delays
Lawsuit Funding Companies (LFCs) can help some plaintiffs by funding some kinds of lawsuits. LFCs help plaintiffs, but only when it makes sense for the LFC. If the plaintiff needs $500 for their lawsuit, funding comes quickly. If the plaintiff needs $20,000, funding depends on careful and successful due diligence by the LFC.
From a Google Search, you get the impression that you can get money for funding your lawsuit in as quickly as one to three days. While this can happen, it’s more likely to take three to twelve weeks.
Presuming you qualify to have a Lawsuit Funding Company (LFC) fund your lawsuit, the speed at which this happens depends on your paperwork, your lawyer, your debtor, and the complexity of your case.
When you sue someone, there is a staggering amount of paperwork generated and research gathered. When you hope to get funding from a LFC, you must again deal with this paperwork.
Some LFC web sites have online forms, so you can “instantly” submit your application. They hint that action (money coming to your door) can happen in 24-72 hours.
Less than one time in a hundred will this really happen within 72 hours. In many cases, if all parties are ready and cooperate quickly, one can know if they qualify for money within a week. Actually getting cash comes later.
Because funding lawsuits has risks, LFCs must perform their due diligence. The LFC must know the nature of the case, where the case has been filed, damages sought, the expenses the plaintiff has incurred, etc.
Any plaintiff wanting their lawsuit funded needs to be aware of how much documentation is required before any payoff can happen. The delays in getting a lawsuit funded often depend on the time it takes for the plaintiff to supply the required documentation.
Most LFCs prefer to fund contingency-based cases. (See our Contingency Attorneys article.) They do not like to fund (non-recourse) cases for attorney fees and litigation costs. They prefer necessities of life funding for plaintiffs. The reason is because if the attorney wants their fee or costs “up front”, it means the quality of the case may be questionable.
All parties should be “hungry” for resolution. LFCs reduce a client’s hunger to settle too early for too little, which costs both the client and attorney money.
When finding a LFC, do not believe the “instant” funding pitch. Most Lawsuit Funding Companies have the same product. It makes no sense to talk with ten LFCS. You should look for reputation, length of time in the business, and customer service.