Settlement advances to the legal world are known as Presettlement Funding Agreements (PSFAs), Litigation Financing Agreements (LFA’s) and Pre Settlement Funding. The funding or money is given to someone who has been injured and need money while waiting on a settlement or waiting for their case to go to court.
Typically, lawsuit loans are given to someone who has suffered a personal injury and is pursuing a legal claim for the injury. These plaintiffs who have not worked due to injuries may need money. The financial assistance could be for living or medical expenses, rather than legal costs. After reviewing the eligibility of the pending claim to verify that the claim has merit and any case is likely to win, pre settlement funding companies will advance the funds to the consumer.
The consumer only has to repay the funds if and when the client settles or wins the lawsuit. Attorneys are not allowed to loan money to their clients and bank will not loan money to someone who is injured and not working. So what is left when an injury victim needs money to just get by? Settlement Loan Companies http://www.ncsl.org/research/financial-services-and-commerce/litigation-funding-transactions-2014-legislation.aspx
The History of Pre Settlement Funding (Litigation Financing)
Since the late 1990s, some businesses have offered plaintiffs money to help with their living expenses during their court cases, with repayment contingent upon the plaintiffs’ success in court, similar to contingency fee agreements used by law firms.
Before pre settlement funding, if a tort (injury claim) victim found herself unable to work as a result of another negligence and she lacked sufficient cash, savings, or other liquid assets, she might not be able to pay for health care, food, housing, transportation, and the myriad of other expenses that come with living from day to day.1 http://scholarship.kentlaw.iit.edu/cgi/viewcontent.cgi?article=3989&context=cklawreview
What about injury lawyers. Can’t lawyers loan a plaintiff money?
Attorneys not to loan money to clients. Florida’s Ethics opinion has previously indicated that attorneys cannot personally loan money to clients in connection with pending litigation. Florida Ethics Opinion 65-39
So lawyers are unable to loan plaintiffs money and the banks certainly won’t lend money to someone who is injured and has no income then how does someone who is injured and has a pending lawsuit get money to hold them over? The Florida Bar understood this situation and gave the opinion that:
..an attorney may provide a client with information about companies that offer non-recourse advance funding and other financial assistance in exchange for an interest in the proceeds of the client’s case if it is in the client’s interests. Florida Ethics Opinion 65-39
Who Started the First Pre Settlement Funding Company?
Who started the first lawsuit loan company is a contested matter, but in an article written by the Kent Law Review, the name frequently associated with being the industry’s founder is Perry Walton (“Mr. Walton”).2 – Source
Mr. Walton categorized his advances as “contingent obligations” rather than loans, the distinction being the advances he made were contingent upon the outcome of the underlying litigation and therefore were not loans because borrowers did not have an absolute obligation to repay.7 That is, when a plaintiff receives something from her lawsuit, her obligation to repay the advance on her settlement is triggered. 8
Footnotes and sources:
- Hashway, supranote 4, at 751; Martin, supranote 5, at 55-56; Shukaitis, supranote 1, at 329; Estevao, supranote 4, at 468-69
- Hashway, supra note 4, at 753-54; Lysaught & Hazelgrove, supra note 13, at 649; Martin, supra note 5, at 70; Julia H. McLaughlin, Litigation Funding: Charting a Legal and Ethical Course, 31 VT. L. REV. 615, 618-19 (2007); Shaltiel & Cofresi, supra note 16, at 347; George Steven Swan, Economics and the Litigation Funding Industry: How Much Justice Can You Afford?, 35 NEW ENG. L. REV. 805, 825-26; (2001); Beydler, supra note 16, at 1162; Nicholas Dietsch, Note, Litigation Financing in the U.S., the U.K., and Australia: How the Industry has Evolved in Three Countries, 38 N. KY. L. REV. 687, 691 at n. 35 (2011); Grous, supra note 16, at 206-7; Rodak, supra note 16, at 505-06. Alan Zimmerman, who started an LFC in 1994 in San Francisco, California, is also considered a founder of the industry. Appelbaum, supra note 11. Others include a mortgage salesman from Buffalo, New York and a subprime automobile lender from Nashville, Tennessee. Id.
- CASINO (MCA/Universal Pictures 1995).
- Richard B. Schmitt, Staking Claims: A Las Vegas Lender Tests Odds in Court—And Forms an Industry, WALL ST. J., Sept. 15, 2000, at A1..
- Id.; Adler, supra note 16, at 334-35.
- Hashway, supra note 4, at 751; McLaughlin, supra note 29, at 620-21.
- Hashway, supra note 4, at 754
States
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