Despite the name, “case Loans” are not really loans. They’re a form of pre-settlement payment made to a client who can’t, or doesn’t want to, wait for a pending lawsuit’s final judgment or settlement. More accurately, the “case loan” is actually a contractually agreed-upon advance against expected future payouts from a lawsuit. In a sense, it’s an “investment” in those future payouts that can almost be considered a form of venture capital.
“Case loans” are important options in many American court cases because mainstream lenders generally won’t support cash-strapped litigants, and limit their formal loans or lines of credit only to lawyers and law firms. This policy, unfortunately, leaves those lawyers’ clients out in the cold.
Many Clients Can Benefit From “Case Loans”
Ordinary people who need money to maintain a decent lifestyle until their lawsuit reaches its ultimate conclusion can benefit greatly from the various forms of “non recourse” lawsuit funding that come under the rubric of “case loan.”
The biggest advantage of these “case loans,” of course, is that they do not entail any serious financial risk for the client: if their lawsuit goes against them, or if it settles for less than expected, the client has no legal obligation to repay any “case loan” amounts that exceed the total amount received from the case. In other words, a client’s maximum repayment obligation to the lawsuit funding company is simply their share of any recovery, or less, depending up the “case loan” contract terms.
When Does Taking A “Case Loan” Make Sense?
If “case loans” were competitively priced with ordinary loans, they’d be a sensible alternative for a great many clients waiting for the final results of their lawsuits. But they are rarely priced so low. Although they are normally structured to sidestep any relevant usury laws, “case loans” usually specify certain costs that — when the lawsuit results in sufficiently large awards or settlements — drive a client’s total repayments considerably higher than the amount originally advanced.
For this reason, “case loans” are not appropriate for every client, and should normally be considered the financing option of last resort.
Before accepting a “case loan,” clients should consider utilizing their credit cards, unsecured lines of credit, home equity loans, personal loans, or cash advances from friends and family. Any or all of these funding sources — which must normally be paid back regardless of the lawsuit’s outcome — can prove less expensive than non-recourse “case loans,” particularly in situations where favorable legal outcomes allow for full repayment of the funding company’s maximum charges.
When there is no other source of funds, though, and the client is facing “must pay” medical bills, for example, or mortgage payments, educational expenses, even ordinary living expenses like food and utilities, then “case loans” may look far more attractive than other remaining alternatives, such as non-payment, or going without.
Some Ins and Outs of “Case Loans”
Although lawyers need not be involved in negotiating terms of a “case loan,” it’s usually smart for clients to work closely with their attorneys when taking out a “case loan,” not only to obtain the best possible arrangement and to review the necessary contracts, but also to identify experienced and amenable lawsuit funding companies.
Naturally, bar associations and state legislatures are extremely concerned about preventing situations that can give rise to conflicts of interest between attorneys and their clients. That’s why lawyers are allowed to advance the out-of-pocket costs of ongoing litigation, but are forbidden to lend their clients money. These strictures are intended to prevent situations where lawyers may be tempted to push for a faster but smaller recovery, or to be satisfied with a settlement offer that covers the lawyer’s loan to the client, but little or nothing more. Keeping the client’s and the lawyer’s financial interests separate is one part of an overall attempt to keep the client’s best interests paramount.
However, nothing prevents a lawyer from referring a client to lenders and lawsuit financing companies that can help the client obtain needed or wanted money during the pendency of a lawsuit.
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