A Paralegal’s Guide to Plaintiff Lawsuit Funding
Paralegals handle quite a few tasks during their workday. They split their time between legal research, preparing for trials, administrative work and client interviews, just to name a few. As if that isn’t enough, the rising demand for pre-settlement funding by plaintiffs has added another task for paralegals to juggle.
When a client applies for funding, it’s often your job as a paralegal to take care of the application process with the funding company. The process can be streamlined or a complete headache. It all depends on which funding company (or broker) you’re dealing with. You don’t have control of which company the plaintiff applies with, but there are steps you can take to save time and protect your client from signing an unfavorable, expensive funding agreement.
This detailed guide will show you, the paralegal, how to make the pre-settlement funding process simple and efficient, no matter which company you’re dealing with.
This guide will discuss
- what to tell your client before they apply anywhere
- how to efficiently manage plaintiff funding applications
- how to know whether or not your client is securing a fair deal
- how to keep sensitive case documents confidential
What paralegals should tell their clients before getting pre-settlement funding.
Lawsuit funding should be a last resort. Advise your client not to seek funding unless they have tried everything else to find affordable financing. Explain to your client that interest rates in the lawsuit funding industry can be “reasonable,” but never cheap. In other words, lawsuit funding is expensive compared to more traditional lending options. This is because lawsuit funding is a nonrecourse investment, meaning it’s an extremely risky venture for the funder.
Things to discuss with the funder before you provide any documentation.
There are many “nonstarters” when it comes to qualifying a case for funding. It’s important to know what they are so you can notify the potential funder about them right away. This will save you and the funder time since you’ll avoid digging into the case for no reason.
While every funding company has its own nonstarters, here’s a list of the most common:
- Previous funding. Many companies don’t fund cases that have been previously funded by other companies. When a rep from a funding company first makes contact, tell them if there’s a current lien from another company.
- Soft-tissue injuries. Many funding companies don’t consider cases with soft-tissue injuries. Test the waters by telling the underwriter at the funding company about your client’s most significant diagnosed injury.
- Plaintiff resides in an “unfundable” state. Lawsuit funding is not permitted in some states. Different companies operate in different states, so make sure to notify them of your client’s state of residence.
- Stage of litigation. Some companies won’t consider funding a case if a lawsuit has not been filed. Make sure to let them know if the attorney has not yet filed a lawsuit.
How to keep case-related documents safe and confidential?
You may have to forward sensitive medical and legal documents to funding companies on behalf of your client. This must be handled with care. Here are three security measures paralegals can use to protect their clients’ privacy:
- HIPPA consent form. Require the funding company and the client to sign a HIPPA form.
- Confirm client-and-funder contact. Always double check with the client to make sure they applied with the company that’s asking for the paperwork. Some companies are bold enough to contact a law firm without first consulting with the plaintiff.
- Ask, “Are you brokers or direct funders?” Always know if the company you’re dealing with is a broker or a direct funder. If they’re a direct funder, they will probably be the only ones looking at the documents you send them. If they’re a lawsuit funding broker, those documents will most likely be in the hands of multiple individuals and/or institutions.
HOW TO KNOW IF YOUR CLIENT IS GETTING A FAIR INTEREST RATE.
As a paralegal, it’s not your job to make sure the client gets a fair shake in pre-settlement funding—that responsibility falls squarely on the client. Nonetheless, the best paralegals break down the terms and fees of the agreement so the client can make an educated decision before they sign.
Explaining the main points of a funding contract to your client is easy if you know what to look for. You should know the answer to these important questions before explaining the contract to your client.
Compounded or simple interest?
Is your client being charged simple or compounded interest? This is an important part of any funding agreement—it’s the first question you should find the answer to. Depending on when the case settles, a compounded monthly rate of 2% could end up costing more than 3% in monthly simple interest. Explain to your client that a compounding rate exponentially increases the amount they owe the funding company as more time goes by.
Is your client being charged an application fee? Always look for “administration fees” or “processing fees” in the contract. The fees aren’t due up front, but they’re calculated into the payoff at the conclusion of the case. It’s also important to explain to the client that they will also be charged interest on the application fee. For example, if your client is being advanced $10,000 and there is a $300 application fee, the interest will apply to $10,300, not $10,000.
If you know for a fact your client did not go through a broker, you obviously shouldn’t worry about a broker fee. Nonetheless, it’s always good to double check—lawsuit funding brokers often don’t expose their status as a middleman if they don’t have to. You can easily tell if a broker was involved by looking for an “origination fee” in the agreement. Also known as a “broker fee,” these can add up to as much as 15–25% of the funding amount. If your client was advanced $10,000, the broker would add as much as $2,500 from day one. Just like application fees, your client will be charged interest on $12,500 rather than the $10,000 that was advanced to them.
About the company who authored this post: Nova Legal Funding
This post was brought to you by Nova Legal Funding, a lawsuit funding company based in Los Angeles. Nova Legal Funding works with dozens of paralegals on a daily basis to provide low-cost financing to plaintiffs involved in any type of lawsuit. Whether you’re a paralegal or a paralegal-to-be, we hope you found this post helpful.