Joe Roosevans - What is Legal Finance?

The law is a living thing, always changing, and one of the most recent sets of changes to occur has been in the field of legal finance. Whether it’s called a so-called “lawsuit loan,” a cash advance, or legal finance, the practice of providing money for litigants during the weeks, months, or years while their cases wind their way through the courts has become relatively commonplace only during the last decade or so.

Established in 2004, the American Legal Finance Association (ALFA) is now comprised of 21 leading companies in the field, each of which provides non-recourse funds to claimants and litigants in the period before they receive a final judgment. ALFA carefully establishes and promulgates industry standards regarding transparency and disclosure to those in need of legal financing, as well as best practices for member firms and others to follow.

Before legal finance became so widespread, participants in personal injury and other lawsuits had little or no access to funds that could tide them over while waiting for their court cases to be resolved. Cases can take quite a long time to produce a final judgment, while funding needs like medical services, tuition payments, mortgages, and everyday living expenses cannot normally be put on “hold.”

In the absence of legal finance, plaintiffs traditionally relied on ordinary loans, borrowing from credit cards, or assistance from family members to keep a roof over their heads while justice was still in process. These sources of funds, however, can sometimes create new problems for litigants, such as delays for employment verifications and credit checks, limitations on total borrowing capability, and the need to repay theses loan whether or not the legal case works out favorably.

What’s more, whether they are pursuing a case in court or negotiating a settlement, people who feel short of cash also feel themselves to be in a far weaker position than when they have the money to pay their everyday expenses. With legal finance, however, money is made available to plaintiffs on a non-recourse basis. Simply put, this means the amount that must be repaid is limited, based on the borrower’s financial recovery from the case. In the worst possible situation, where you lose the case and recover nothing, no repayment at all will be required.

Today, the legal finance industry is helpful not only to individuals caught in a long, complicated court cases, but also to businesses pursuing commercial litigation. Most business organizations will collapse if they cannot maintain a steady flow of funds to cover operating expenses while waiting to learn the outcome of a commercial lawsuit. Legal finance provides those funds, and so helps keep the business afloat for long periods of waiting time. Attorneys, too, will frequently rely on legal financing to cover their overhead costs while working a case in hopes of earning a contingency fee.

In essence, legal finance transactions are more akin to investments than to loans. The company providing the funds to the plaintiff provides an advance and thereby acquires an interest in the case’s outcome. If the plaintiff prevails, the funding company stands to receive the entire original cash advance plus a profit on the investment. If the plaintiff receives less, under the terms of the legal finance contract the investor is limited to taking a far smaller share.

“FRA Financial Group Founder Joe RoosEvans is an industry veteran who has built one of the nations’ most successful Independent Marketing Organizations – Financial Resources of America and its affiliated companies, including FRA Financial Group.”