Lawsuit funding is basically an investment in the anticipated favorable settlement of a legal suit. The funding gives adequate time for the litigant to successfully wait for the court settlement instead of being forced to accept the first offer of settlement from the opposing party, usually at a fraction of what the court would have given them.
The reason why lawsuit funding came into existence was the fact that many plaintiffs did not consider filing lawsuits for personal injuries suffered or against unfair practices employed in the workplace as litigation was normally quite expensive and long drawn out. Many lawsuits were also dropped before an outcome as those who had filed the cases found litigation too expensive when they themselves were out of work and finding it difficult to subsist only on their meager savings.
What Is Litigation Finance?
Pre-settlement lawsuit funding is a cash advance without any recourse that is provided to a litigant who has already filed a lawsuit or has engaged an attorney to file the case in the competent court. The litigation is usually for personal injuries sustained, illegal termination of employment or any other discriminatory practices faced in the workplace.
The funding is done on the premise that the advance would be repaid along with the interest applicable and other fees and charges specified in the contract after the successful outcome of the lawsuit. In case the lawsuit is not settled in the plaintiff’s favor, no money need be returned to the funding company. The advance provided is not conditional regarding the end use of the funds, i.e. the plaintiff can use the funds as he thinks fit and not have to explain his expenses to anybody.
Attorneys should try and ensure that whatever funds that are not essential to the subsistence of the clients are used properly towards the costs of the case, such as research, expert witnesses, etc., so as to get a favorable outcome of the case. It must always be remembered that attorneys engaged on a contingent basis will get their fees only if they are successful. Only lawsuits that have a very good potential for a successful outcome are funded by the lawsuit funding companies.
Among the factors they take into account while deciding the amount to be advanced is the duration in which, the case is expected to be settled, the nature of the suit, the insurance companies involved, as well as the duration for which the case has been active. Litigation funding companies never fund the full amount of the expected settlement; in fact, even a third would be extraordinary, with the average being 10%-20%. The funding company has a lien on the entire award following the liens that may have been created for medical expenses, and legal fees.
Why Do Attorneys Favor Lawsuit Funding?
It is commonly seen that victims of personal injuries and workplace discrimination often run into problems of paying their rent, mortgage, living expenses, medical bills, etc. while waiting for a successful outcome of the lawsuit filed by them. Even after the lawsuits are settled by the court in their favor, sometimes due to bureaucratic processes, it can take a lot of time for the cash to be received. Since plaintiffs feel pressured financially, they are often prompted to settle for some very low offers by insurance companies and the defendants of their lawsuit.
Lawyers are also not in a position to advise their clients to wait it out for a proper settlement because often the very existence of the plaintiff can be threatened due to shortage of money, and clients may end up losing their homes even if they cannot service their mortgages in the meantime. Lawsuit financing gives the clients a breather and they can now continue to fight their cases to their successful outcomes.
Why Should Attorney Recommend Lawsuit Funding?
Lawsuit funding is a good course of action for those litigants who do not have enough cash to fulfill the expenses of their daily lives and engage in the legal battle to its logical end. Also, if the litigation is unsuccessful, the client can simply walk away without any obligation to pay back the advance. If successful, the client, needs to pay back the sum along with the interest and charges specified in the agreement. Lawsuit finance gives the much-needed breather for litigants so that they can keep on fighting for a better award rather having to succumb to the temptation of the first offer of settlement by the defendant that would be typically a bare minimum.