The laws governing legal funding vary from state to state.
Some of the legal funding factors most states agree on, however, are:
The majority of states have concluded that providing information to a funding company at the request of a client is permissible, with the informed consent of the client, of course. They have concluded that an attorney may honor a portion of the client’s settlement to a funding company.
You often hear, these same states and governing bodies commenting that when a third-party funding company is involved, clients may lack an incentive to cooperate, some even suggest it encourages frivolous litigation.
Here, we would like to offer up a different opinion, and the top three reasons why someone should use pre-settlement funding when and if they find themselves in litigation.
Three Long-Term Benefits to Using Non-Recourse, Pre-Settlement Funding
1. Preserving the Role of All Parties
Attorneys, plaintiffs and doctors are all best served when an independent, third-party is the source for plaintiff funding.
Medical providers should never take on this role, or have a financial interest in the outcome of a case, in any way shape or form, by holding their own liens. Their job is to provide the best medical care, period. The same is true for attorneys and providing the best legal advice and pursuit of their clients claims.
In other legal circumstances, this is referred to as the separation of church and state.
In either scenario, there is an inherent conflict of interest, where the party providing funds would potentially be willing to settle a case for less than it is worth to secure their own repayment.
This cannot happen.
When a third-party legal funding company is involved, attorneys and doctors should have no ownership interest in that company whatsoever, nor should they receive any compensation other than the value paid to the doctor for their professional services at the time of treatment and the time value granted the attorney to maximize case values. A doctors opinion and treatment plan should be based solely on patient needs and never on whether or not they will be paid for their services.
As a third-party funding company, we have no input or ability to influence the outcome of a case, thus preserving the unbiased position of everyone involved.
2. Contingency Based
Non-recourse advances are contingency based. Meaning, plaintiffs have no personal obligation to repay advanced monies, other than through the results of their settlement or judgement, which may or may not be successful.
Funding is not to be repaid by the recipient at a later date, which is why these non-recourse cash advances are not considered loans because the funds come from the settlement or judgement in a lawsuit, and only in the event of a successful conclusion for the plaintiff.
In the instances where plaintiffs lose their cases and are not awarded anything, they repay nothing.
And in the scenario where a settlement is significantly lower than the liens they have, they are never obligated to repay more than the settlement they receive.
Tip: Before using a legal funding company, plaintiffs should first seek funding from alternative sources, like friends, family, credit unions or banks. If no personal funding can be sourced, and after all personal resources have been exhausted, legal funding can become an excellent alternative, and may prevent premature settlement.
If the attorneys representing a plaintiff in a given case believe they can get a higher settlement given more time, the math and benefit of pre-settlement legal funding can be easy to follow.
3. Budgeting for Best Case Scenarios
Underwriting and risk management are keys to the legal funding business. Calculating advance rates and anticipated settlements to help assure the best outcome possible for plaintiffs and attorneys are the way funding companies add value to the inherently disadvantaged position that insurance companies force plaintiffs into.
Rolling Contracts are a responsible answer to plaintiff cash needs, especially for cases with indefinite timelines.
Supplying necessary funds in small increments over time saves the plaintiff money and potentially allows for greater take-home settlements. This, versus advancing large amounts of money upfront, which can lead to a plethora of long-term financial issues, including the mismanagement of funds and the need for more money over time.
When proper budgeting is done, everyone wins.
There are instances where case values are overestimated and advance rates, therefore, get miscalculated. In these cases, plaintiffs benefit from having received, essentially, too much money because they are not liable to repay more than the total amount of their settlement. Having worked with thousands of attorneys on over 30,000 cases, we budget to minimize the instances of over-advancing funds, but also understand when reductions on monies owed are necessary and accommodate accordingly.
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