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Lawsuit Loans – Essential 11 facts that lawyers should be aware of

Lawsuit Loans – Essential 11 facts that lawyers should be aware of

The legal field comes with its set of rules and regulations! Each guideline and rules get created in a way so that it can benefit the people for whom the law is made. The same applies to the domain of lawsuit loans. It is created to make it easy for people to cover their expenses while a legal case is on. And most successful and personal injury lawyers would always try and figure out what is best for their client. Hence, when a client asks the lawyer for a cash advance on their legal case, they think twice before forwarding them to a lawsuit funding service provider.

Most people by now have received their warning signs regarding the lawsuit loan sharks as well as their crude, predatory practices and tendencies. There’s no one to blame you if you resonate with this. Instead, today lawyers and other lawsuit loan providers understand this situation and exercise better caution, to keep their clients free from such malicious practices. The reason for this is very simple – till date, the lawsuit funding vertical is in the early stages and can be hardly regulated. It indicates that the regulatory conditions are weak and the attorneys need to stay vigilant so that they can secure their clients. 

Things to take note of

In particular states, the term “hardly regulated” for the lawsuit funding industry is a generous term. Today, this risk driven regulatory platform has led to a complete exploitation of the plaintiffs by the litigation financers. If you are a personal injury lawyer, there are many ways you can exercise to secure your client’s from falling prey to a dangerous lawsuit loan company. However, for this, it is essential to keep a few things in mind. For this you can keep handy the important eleven facts that are discussed below:

  1. Know the funding company 

Simply put the funding organization or service provider that your client contacted can turn out to be a broker. There is no harm if there are lawsuits of funding brokers available today. However, if a broker is representing himself/herself under the pretense of being a direct funder, then that is a significant issue. And these are something that you need to aware of and inform your client as well.

  • The broker charges passed to the plaintiff

Have you thought the reason behind a broker not presenting himself/herself for real? It is because by staying in disguise they can get a commission between 10% and 20% based on the proper funding amount of the client. It is a common practice for a funder to pass the origination charges to the client merely.

  • The monthly fees

It is possible for the costs to rise above 3.5% every month, till the time the client case gets settled. At this rate, just in case your client needs about one year to settle the case, you can expect to pay more than 70% of the charges. Also, if the legal case lasts for two years starting from when the client signed the funding agreement, the client will owe close to 150% of the interest. 

  • Companies levy an application fee of $400

Several funders don’t expect any upfront payment. Hence, they merely subtract an application charge right from the purchasing cost. Naturally, the client now is entitled to pay the interest on his application charges. 

  • Big application charges don’t get minimized for small advanced

There are a few companies that are willing to provide an advanced amount of $1,000 and has $400 in its application charges. Much before the day of interest comes, the client has already landed in danger for 40%. It is a serious issue that needs considerations.

  • Usually, the second funder ends up buying out the first funder

If a client receives an advance amount from Company 1 and also applies to Company 2, then the second company will most likely purchase the residual interest of the primary funder. It is called as “paying off” the first funder. 

  • When your client seeks lawsuit funding from another source, their first advance can get refinanced at an increased rate

The moment a second lawsuit loan service provider buys out the first one, it’s the second company that has the lien ownership. Any price they decide, low or high, will be the rate that the client needs to pay till such time the case gets settled.

  • Different funding service provider comes with a separate fee format 

The two essential fee formats comprise of the compound monthly interest or fixed payout every six months. And both might be either fair or excessive. Hence, it all gets based on the overall percentage rate for any of the fee format.

  • Aggressive funding service providers at times over funds to increase profits

Make sure that a funding service provider doesn’t over-finance a client case. This over-financing might lead to the client getting close to nothing, the moment a legal case gets settled. Hence, it’s a smart call that the plaintiffs must take what is required to address the lawsuit. Generally, the clients’ advanced need not surpass approximately 10% of the value of the legal case. 

  1. The regulatory circumstances are never static

You need to be at par with the changing regulatory scenario of the lawsuit financing applicable in your residing state. Ensure that all the essential terms in the lawsuit funding agreement are compliant to the existing regulatory standards. It will keep you safe from any added legal hassles.

  1. Some companies don’t divulge the payoff format in the agreement

It is essential to ensure that the client is aware of the amount they might owe in the next 6 to 24 months, from the time when they signed the funding agreement contract. An expert lawsuit loan service provider will always be transparent on the payoff table in the contract. If not, then you need to stay aware of this and question the payoff chart.

These are some concerns that an attorney needs to be aware of when addressing a lawsuit loan case. It helps to streamline the legal case and enable the clients to manage their payments better.


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