Non-recourse loans have some key differences from traditional recourse loans that make them well-suited to third-party legal funding. While both types of loan allow borrowers to seize assets to ensure repayment, non-recourse loans only allow lenders to take collateral. In the case of legal funding, the collateral is the plaintiff’s settlement.
Plaintiffs may wait for months or even years to receive their payout, during which time they could face intense pressure to settle for a lesser amount. They do this intentionally in the hope you’ll give up or are forced to give up the fight because you have no more financial means to stay afloat. Unfortunately, these tactics are all-to common in the legal world.
A non-recourse loan can give you access to your settlement money now so you can better resist these pressure tactics. Legal funding companies are eager to offer these loans when they know that a plaintiff has a strong chance of winning. So, how do non-recourse loans actually work and are they really risk-free for the plaintiff?
What Is a Non-Recourse Loan?
In settlement cases, many plaintiffs have poor credit or could lack the collateral they need to obtain a personal loan. However, they do have one valuable asset that could soon come into their possession: their settlement money. These conditions make non-recourse loans, often called legal funding, an attractive source of cash for plaintiffs.
Non-recourse loans work differently than traditional loans because they only allow lenders to collect the collateral as repayment. This makes lenders assume all of the risk of the loan. While this can lead to high interest rates, a reputable legal funding company will strive to keep theirs low and avoid saddling plaintiffs with extra charges.
What Does Recourse and Non-Recourse Mean?
The definition of recourse in legal terms is the right to ask for payment or some sort of compensation. With recourse loans, lenders can seize and liquidate a borrower’s personal assets to secure payment. Non-recourse therefore means if you lose your case, you are not legally obligated to repay the money you were given.
To understand how this works in practice, we need to look at how recourse forms of debt work. Recourse loans require you to pay back the full amount of the money you were lent, even if your personal assets need to be seized and liquidated. For non-recourse loans, lenders may only seize the collateral for the loan and none of the borrower’s other personal assets.
Examples of Non-Recourse Loans
Examples of non-recourse loans are pre-settlement loans and traditional mortgages. Mortgages are offered on the underlying assets, or collateral, which is the house. This means if the home owner defaults on their mortgage, the bank can foreclose on the home, take possession, and sell it to satisfy the lien.
For non-recourse pre-settlement loans, the underlying collateral is the expected settlement of your lawsuit. If you lose your lawsuit or never get the settlement paid out to you, the underlying collateral will be gone and a legal funding company cannot hold you personally responsible to repay the borrowed amount. This is what makes a pre-settlement loan risk-free for plaintiffs.
Do Non-Recourse Loans Have Monthly Repayments?
Another factor that contributes to pre-settlement loans being risk-free is that the repayments are never expected until you receive the settlement payout. There is no risk of missing payments on a monthly basis as these do not exist with this type of debt. For most forms of pre-settlement legal funding, you won’t make a single payment until you’ve received your settlement money.
Advantages of Non-Recourse Loans
Non-recourse loans offer several distinct advantages for borrowers. In addition to being risk-free, repayment of a non-recourse legal loan is never expected until you receive the settlement award. There also aren’t any monthly payments to make on this type of debt.
In the context of legal funding, non-recourse loans also may come with interest rates that are far lower than your alternatives. Instead of compounding interest rates, reputable legal funding companies will offer cash with simple interest. This means you can take home more of your settlement than you could if you took out a personal loan or paid your bills with a credit card.
What Have Courts Said About Non-Recourse Loans?
Courts have generally allowed nonrecourse loans for legal funding, but the industry as a whole remains largely unregulated. That can leave borrowers vulnerable, as legal funding companies often have a free hand to charge exorbitant interest rates. In some instances, these can be high enough to take up the entire settlement by the time a case is resolved.
While lawsuit funding is a legal practice, you will want to do due diligence on any company that you work with. Trade organizations such as the American Legal Finance Association help to create best practices for the industry. Companies that are in good standing are generally a member of at least one of these organizations.
Why Do Funding Companies Offer Non-Recourse Pre-Settlement Loans?
Why would someone give you a large amount of money, with the possibility of never seeing it back in case a lawsuit is lost? Pre-settlement loans are classified by the IRS as an investment. A legal funding company will see a return when your lawsuit concludes. The initial cash advance and the agreed-upon interest will be paid back by your lawyer, who will divide the settlement.
Another reason why financiers offer legal funding is the fight for justice. When your life has been destroyed because of medical malpractice or an accident at work, you are left suffering physically and/or emotionally. Most of the time you are left worrying about how you are going to pay next month’s rent and put food on the table, which should be the least of your worries
We understand that with a little financial help you can get back on your feet, therefore they offer non-recourse cash advance from your expected settlement to give you the financial support so you can live and the corporation can be brought to justice.
How Much of My Own Settlement Will Be Leftover?
You might wonder when everybody has taken a cut from your settlement if there is anything left. Reputable legal funders are very conscientious in making sure you will always get the largest part of your settlement. You should always have a sizable percentage left.
Unfortunately, there are companies out there that will try to offer you lawsuit loans with terms and conditions that are not beneficial to you. These can be recognized by trying to push you into signing an agreement you do not understand or sell you high-interest rates.
Reputable legal funding companies offer pre-settlement loans which always offer you competitive rates and have your interests at heart. They are not interested in earning a quick buck but rather want to help you get justice. They understand that powerful corporations have the financial upper hand and exploit this by stretching the legal process over years.
What’s the Process of Getting a Non-Recourse Loan?
If you have been hurt on the job, endured sexual harassment, or suffered a breach of contract, or any other form of injustice, you need to contact a lawyer who is willing to take on your case.
If your lawyer has experience working with companies who offer non-recourse pre-settlement loans, this will make the process quicker. Mainly because they already have a reputation with them and your lawyer is aware of the documentation needed and the overall process involved. The process is as follows:
- Your lawyer has to be working on your active lawsuit.
- Contact a legal funding company offering a non-recourse loan and give them permission to speak to your lawyer.
- Your lawyer has to provide all the evidence for review and processing by the legal funding financier. An organized lawyer is able to present all your outgoings, past and future expenses surrounding your injury, supply the evidence, and detail the legal theory to support your lawsuit.
- Upon approval of your non-recourse loan, you will be able to receive your cash advance in as little as 24 hours.
- You pay your bills or spend the money elsewhere, there are no restrictions on what you can spend the cash advance on.
- Your lawsuit concludes in your favor and your lawyer receives the lawsuit settlement.
- Your lawyer pays the non-recourse loan back.
- You receive the majority of the settlement.
In the case your settlement didn’t conclude successfully, the underlying collateral for your loan is gone and you are not obliged to repay the non-recourse loan.
Apply for a Non-Recourse Loan Today
Tribeca Lawsuit Loans can provide you with a non-recourse loan for your pending settlement. Apply with us today and you could be approved for up to $1 million in settlement funding. Approval takes just a few minutes and the money can be in your bank account within 24 hours, ready for you to spend however you need to win your case.
Contact our team if you have any questions about whether you qualify for legal funding and how it can best help you. We’re standing by and ready to help you through the application process. With Tribeca, you could soon have all that you need to fight for your full measure of justice.