Legal Funding Information and You (Part 1)
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Legal Funding Defined
Legal funding describes a financial transaction that is characterized by specific elements that constitute the difference between this and other common types of financial transactions, such as for example advances on your credit card or car loans.
The Difference between a Legal Funding and a Lawsuit Loan
Despite the fact that there are similarities between a loan and legal funding, the least is not a loan. However, in both cases, you are given money now that you will be paying later and also with an increased amount. This is what makes many people call the legal funding as being a “lawsuit loan”. Actually, legal funding is a sale or an advance. In legal funding, the plaintiff sells interest in the outcome of their lawsuit. In case the plaintiff succeeds in winning the lawsuit, the legal funding company wins back the purchase price with the rate of return, which is increased over time. In case the plaintiff loses, then the legal funder also loses the investment. Legal funding is also known as non-recourse investment. This means that you are not required to pay it back in case you lose. In what regards a loan, you need to pay back the initial and the interest, regardless of what happens. In specific cases, the legal funding companies replace the rate of return with a percentage of the final court arrangement or award, but this usually happens in rare cases of personal injury.
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The Difference between a Legal Funding and a Traditional Loan
Typically, in financial transactions, such as for example getting a home mortgage or a car loan, the person who does the buying is called consumer. In what regards plaintiff personal injury funding, the consumer refers to the party who sells, as they sell an interest in their lawsuit. In some cases, consumers have special legal protections, so that certain states regulate legal funding
in the same manner that they do for car loans or mortgages. In such states, it becomes harder or even impossible to obtain legal funding, due to over regulation. Some examples of such states include Alabama, Colorado, Maryland, North Carolina, Oklahoma and Tennessee.
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How to Apply and Get a Legal Funding
Legal funders are interested in lawsuits that offer good chances of winning monetary awards. This means that they would typically not fund vain claims or purely thoughtless lawsuits. In addition, there are three common types of personal injury lawsuits that would find it harder to obtain legal funding and they are: worker’s compensation, wrongful death and lawsuits in which the victim is a minor.
In the next article are the reasons…
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