Legal funding is a financial transaction with special elements that make it different from other types of financial transactions. It is a form of advance but is different from credit card advances or car loans. This type of legal financing is not a lawsuit loan. There may be some similarities but its overall concept is different. Legal financing is a sale or an advance. A plaintiff sells a share in the outcome of his or her lawsuit in exchange for money. If the plaintiff wins the case, legal funding companies get their purchase price back with an additional rate of return.
If a plaintiff loses his or her case, the funding company loses their investment. This type of funding is also referred as a non-recourse investment. This basically means that plaintiffs is not obliged to pay the funding when they lose their case. This is where this type of funding differs from a loan. You still have to pay a loan back no matter what.
During a lawsuit loan, the consumer is the buying party. However, in a lawsuit cash advance, the consumer is the one who sells. They are selling a portion of their lawsuit. Most legal financing companies look for court cases with a higher chance of winning. They evaluate each case carefully in order to avoid any losses.
Various Legal Funding Scenarios
These are some instances when legal funding is difficult to acquire:
• Worker’s Compensation . Most litigation funding companies do not grant advances to worker’s compensation claims. The main reason is due to the fact that the worker’s compensation board awards the settlement directly to the plaintiff. This poses a risk to the company because the plaintiff may fail to pay his or her advance.
• Wrongful Death. Wrongful death cases have many complications that make it hard for legal funders to invest. This type of lawsuit is the same as a personal injury lawsuit. However, their beneficiaries are different. Instead of the plaintiff, the family members are the beneficiaries. Therefore, the money will be part of the estate. This adds more complications to the funding because estate cases are very hard to comply. It may last for months and even years.
• Plaintiffs are minors. Legal funders are unwilling to fund legal cases that involve children because they have many complications as well. Since the plaintiff is still a minor, he or she needs a guardian to seek legal financing. Therefore, the guardian can override the plaintiff’s decision when the time comes.
Despite these situations, funding companies can provide other measures and precautions in order to acquire a legal financial assistance. Additional documents indicating other terms can be done in order to protect both parties.
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.:About the author:.
James Sheridan is the Contracts Manager at Pegasus Legal Funding LLC and is responsible for the final stage of the funding approval process. James focus and priority is delivering to PLF’s clients the funds they need as quickly as possible