What is Litigation Funding & How Does It Work for Attorneys in 2023
Any attorney helping a plaintiff get justice knows how frustrating a long, drawn out, and costly court case can be for everyone involved. You’re eager to provide your client with the best legal representation possible, and do not want to settle for less than they’re entitled to.
For lawyers on contingency, the expenses related to managing the court case, hiring critical experts, and keeping your staff employed can grow increasingly hard to manage if a case is being drawn out over months or years (which is all too common of a phenomenon when taking on wealthy corporations.)
Fortunately, there are solutions for financing your legal practice’s expenditures throughout the duration of a contingency case.
Litigation funding allows lawyers to pay for the costly overhead of a drawn out court case without settling prematurely or paying out of pocket.
In this guide, we’ll define litigation funding before highlighting how the process works for attorneys to get assistance for their court case expenses.
What is Litigation Funding for Attorneys?
Litigation funding (often referred to as case cost funding and litigation finance) is the process of a legal firm receiving assistance from a third-party to finance the costs of managing a lawsuit on contingency.
Just like investing in an asset in the stock market, litigation funders are willing to take a risk and invest in promising plaintiffs’ cases in exchange for a percentage of the settlement when the case concludes. If the case is lost, then the financier is not paid back by the legal firm. The exact terms vary by the litigation funding firm, but are ultimately defined in the litigation funding agreement.
Litigation finance can be used by legal firms representing plaintiffs on contingency to pay overhead, manage life expenses of attorneys, and the hiring of experts like economists, forensic specialists, medical illustrators, etc. throughout the entirety of the court case.
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How Does Litigation Financing Work?
Law firms work directly with a litigation funder to receive funds to be spent on managing a specific case (or multiple cases.) Follow along for more specific insights into the process and if your legal firm qualifies.
Why Do Lawyers for Plaintiffs Often Need Case Cost Financing?
Most attorneys would rather not pass up on a promising case just because the plaintiff is unable to afford attorney fees to bring forward a major lawsuit. But if a law firm agrees to work on contingency, it can take years before a settlement is agreed upon. That means the firm must handle paying salaries, experts, and other general overhead costs throughout the entirety of the legal process.
Litigation funding firms allow for law firms to recruit the best experts possible, and extend the amount of time the firm can afford to keep the case going to receive the best settlement possible for the client.
How Does the Process Work for Lawyers to Receive Financing for a Case?
The litigation funding process for attorneys is straight-forward. Once your law firm determines that it does not want to fully fund a case out of pocket, or wants to have more funds accessible to recruit top-notch experts, they simply need to fill out a case cost financing application. The application process involves providing details about your firm, the case at hand, and the anticipated amount of financial support needed.
Once the application is received, the third-party litigation funding company will review the details of the case. If the case appears promising, you can expect to receive funds shortly thereafter.
Down the road once a suitable settlement is agreed upon, the financier will be paid back.
Do Lawyers Need to Put Their Entire Case Portfolio as Collateral for Litigation Funding?
Most litigation funding organizations require law firms to put their entire case portfolio up as collateral for litigation funding. For attorneys that solely need litigation financing support for one or several of their most expensive cases, a litigation funder such as HMR Servicing offers case cost financing for individual cases.
Pros and Cons of Litigation Funding
You might be wondering, what are the upsides and downsides of case cost funding rather than paying litigation fees out of pocket. Here are real-world insights into the benefits as well as downsides of choosing a third-party litigation funding firm for your cases.
What are the Benefits of Litigation Funding for Law Firms?
As mentioned above, litigation financing is a means for legal firms to outsource the financial burden of litigation expenses. Here are specific benefits of litigation funding and the ways it can make your case easier to manage and your clients’ settlement amount higher:
1. Outsource Case Costs to Third-Party Funding
Your legal firm may be paying out of pocket litigation expenses (such as expert witness fees) for years before your client earns a settlement. And if your firm has multiple cases going on at once, it can be challenging to pay attorneys, paralegals, expert witness fees, etc.
Third-party litigation financing prevents your firm from hemorrhaging cash on hand as cases inevitably get dragged out in court.
2. No Obligation to Pay Funds Back if the Case is Lost
When litigation financiers choose to underwrite a case, they are taking an educated risk by investing cash up front with the hope of seeing a return on their investment once the case is settled. If a third-party litigation funder chooses to finance your case, that means they are confident in your ability to collect a hefty settlement for the plaintiff.
That being said, if something goes awry and the court sides with the defendant, your legal firm is not obligated to pay back the case costs to your litigation funder.
3. Help Plaintiffs Win The Best Settlement Possible By Not Settling Prematurely
The unfortunate reality is that many cases end sooner than they should because the plaintiff and their legal representatives can’t afford to keep the case going for an extended period of time to get your client(s) the full settlement they deserve.
Legal Tip: Is the plaintiff you’re representing struggling to pay their bills related to the case, medical costs, etc.? They can consider pre-settlement funding to get cash for personal expenses without needing to settle early.
4. Hire the Best Experts to Prove Your Case
Expert witnesses can be costly, as are illustrators and other critical professionals needed to prove your case. Your firm may be forced to settle for less-than-ideal experts to support your arguments if there is limited cash on hand.
Choosing to work with a litigation finance firm allows your legal team to hire the best experts possible that can best articulate the details in the case that prove the defendant is liable. Common expert types that can be paid for with these funds for consulting and testifying purposes include economists, forensic experts, life care planners, and medical illustrators, among many others.
Are There Downsides to Litigation Financing?
Here are some of the key challenges associated with legal financing:
1. Law Firms Often Have to Use Their Full Case Portfolio as Collateral
In most instances, litigation financiers will only work with law firms willing to get financing for their entire case portfolio, which can be problematic if your firm is only looking for support with one or several expensive cases. Keep in mind, HMR Servicing provides underwriting for individual cases with merit.
2. A Lack of Regulation
The federal government does not have regulations in place pertaining to lawsuit lending, nor do many states. This type of financing is also technically a non-recourse funding, meaning many of the regulatory policies in place for loans do not apply. With this current lack of legislative oversight, your law firm will need to be extra choosy in who you choose to work with as your third-party litigation funding company.
3. Collection Upon Settlement
Litigation finance firms are willing to front funds to your law firm to be spent on litigation costs with the intention of seeing a return on their investment at the conclusion of the case. Once the plaintiff reaches an agreed-upon settlement, your firm will need to pay back the case costs.
Get Funding as a Plaintiff’s Lawyer
Your law firm wants to take on promising cases, even if they’re costly to bring forward on contingency fee arrangements. Fortunately, your firm doesn’t have to face the full brunt of the case costs for years before collecting a settlement. Litigation finance firms put funds directly into the hands of attorneys to hire experts, and ensure that they have the cash on hand to keep the trial going as long as it takes to get the plaintiff the settlement they deserve.
Get started with HMR to get funding for your cases today by filling out the case cost application.
Related: We compared litigation funding companies and made our research available here.
Case Funding for Contingency Lawyer FAQs
1. What is Litigation Funding?
Litigation funding, also known as litigation financing and case cost funding, is the process of acquiring outside funds to pay for the costs associated with being a plaintiff’s attorney. In previous years, attorneys on contingency and their firms have needed to pay for the full trial costs, from hiring economists and illustrators to paying paralegals and more. These costs add up, especially as cases drag out in court. Seeking financial support in managing these costs allows your firm to focus on getting the plaintiff the best settlement possible without worrying about paying your staff and experts.
2. What Types of Cases is Litigation Financing Available For?
Different companies fund different cases. For example, HMR provides case cost funding for plaintiff attorneys in personal injury lawsuits pertaining to, “personal injury, premises liability, product liability, medical malpractice, maritime, offshore and many other types of…claims.”
3. What are the Benefits of Litigation Funding for Plaintiffs?
Plaintiffs have a lot to gain by choosing attorneys that seek out litigation funding. Having case cost funds on hand allow attorneys to:
Work on contingency when the plaintiff can’t afford expensive legal fees up front.
Hire the best experts for consulting and taking the stand.
Keep the case going without a need to settle prematurely.
Plaintiffs also have the option to seek out lawsuit financing for themselves. Since they often need to pay medical costs and other life expenses throughout the course of the trial, they can seek out pre-settlement financing for direct financial support throughout the duration of the case. This financing support is only obligated to be paid back if the case is won.
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