Legal Financing: New Niche for Financial Services

Enter your search terms Submit search form

How to finance a lawsuit is not common knowledge among the general populace, much less among the legal field as a whole. Pre-settlement lawsuit financing is a relatively new phenomenon in the financial services sector that is a little over six years old. Basically if a lawyer has a case brought to his firm and upon initial review determines it has strong merit – he will then need time and money to develop and "flesh out" certain basic facts. This phase, called the "discovery period" can last several months to several years depending on the complexities involved.

If the firm's financial resources cannot sustain this expense, there are funding sources that will advance the necessary capital. They specialize in finding cases that have a strong likelihood of being winners and have an in-house staff of attorney's that review such cases. Once the law firm is confirmed as a valid risk by the funding source, money is advanced, normally in stages up to an agreed-upon limit. A lien or legal claim is then created so that upon settlement the principal and fees are dispersed to the funder. In the event the case is lost; most funders have no recourse – so obviously their legal team will look with hawk eyes to the merits of the case.

Another recently created niche in this arena is personal injury lawsuit financing, also called pre-settlement legal financing. Look in any major yellow pages under attorneys and personal injury law firms will predominate. Many people who have sustained an injury – be it in an automobile accident or slip and fall, etc. – cannot because of their condition continue to work. Their lawyers can fund items directly related to the case but cannot directly give personal advances to their clients in most states because doing so would be a conflict of interest.

The same basic procedure applies here in that these funders have lawyers in-house that are familiar with these cases and can determine the odds of a winner fairly quickly. The injured parties are advanced money that allows them to pay their bills and survive untill a settlement is reached. For most people in this situation, going up against an insurance company means deep pockets and lots of patience.

An important point should be noted here - these funds are not loans. A loan normally has a well defined payback schedule, usually on a monthly basis and there is an agreed upon date for final payment. The correct term is called an advance and the fees are based on the amount of risk involved. A case could conceivably run from several months to several years – there are no hard and fast rules. The advance has no "up front" fees or monthly payments due and again if the case is lost the client is under no obligation of repayment.

For the reasons just stated, these funds are priced according to the risk involved. However, for many people who have run out of resources, this does give them staying power to go up against deep pockets and very possibly receive a larger settlement. The lawyer may also be helped by not having to settle quickly.

Some have expressed concern that this type of service will lead to a further growth of litigation and "frivolous" lawsuits. Actually the opposite is true. Attorneys for the funders must judge each case with very clear eyes or they stand to lose not only all money advanced but possibly their own jobs. They act as a kind of sifting mechanism separating the wheat from the chaff.

This service is not for everyone – however for attorneys that come up against massive pre-trial expenses and for their clients that have no other way of sustenance until a settlemint is reached pre-settlement funding does offer a viable alternative.

Robert Draper is a CCFC (Certified Cash Flow Consultant) based in the San Francisco Bay Area and is a broker for a number of funding sources that offer legal financing .Mr. Draper can be reached by either Email cflownow@hotmail.com or by phone at 1-888-377-9993.