Legal Financing: New Niche for Financial Services

How to finance a lawsuit is not common knowledge among the general populace, much
less among the legal field as a whole.
Pre-settlement lawsuit financing is a relatively new phenomenon in the financial services
sector that is a little over six years old. Basically if a lawyer has a case brought to his
firm and upon initial review determines it has strong merit – he will then need time and
money to develop and “flesh out” certain basic facts. This phase, called the “discovery
period” can last several months to several years depending on the complexities involved.

If the firm’s financial resources cannot sustain this expense, there are funding sources
that will advance the necessary capital. They specialize in finding cases that have a strong
likelihood of being winners and have an in-house staff of attorney’s that review such cases. Once the law firm is confirmed as a valid risk by the funding source, money is
advanced, normally in stages up to an agreed-upon limit. A lien or legal claim is then
created so that upon settlement the principal and fees are dispersed to the funder. In the
event the case is lost; most funders have no recourse – so obviously their legal team will
look with hawk eyes to the merits of the case.

Another recently created niche in this arena is personal injury lawsuit financing, also
called pre-settlement legal financing. Look in any major yellow pages under attorneys
and personal injury law firms will predominate. Many people who have sustained an
injury – be it in an automobile accident or slip and fall, etc. – cannot because of their
condition continue to work. Their lawyers can fund items directly related to the case but
cannot directly give personal advances to their clients in most states because doing so would be a conflict of interest.

The same basic procedure applies here in that these funders have lawyers in-house that
are familiar with these cases and can determine the odds of a winner fairly quickly. The
injured parties are advanced money that allows them to pay their bills and survive until a settlement is reached. For most people in this situation, going up against an insurance company means deep pockets and lots of patience.

An important point should be noted here – these funds are not loans. A loan normally has a well defined payback schedule, usually on a monthly basis and there is an agreed upon date for final payment. The correct term is called an advance and the fees are based on the amount of risk involved. A case could conceivably run from several months to several years – there are no hard and fast rules. The advance has no “up front” fees or monthly payments due and again if the case is lost the client is under no obligation of repayment.

For the reasons just stated, these funds are priced according to the risk involved. However, for many people who have run out of resources, this does give them staying power to go up against deep pockets and very possibly receive a larger settlement. The lawyer may also be helped by not having to settle quickly.

Some have expressed concern that this type of service will lead to a further growth of litigation and “frivolous” lawsuits. Actually the opposite is true. Attorneys for the funders
must judge each case with very clear eyes or they stand to lose not only all money advanced but possibly their own jobs. They act as a kind of sifting mechanism separating the wheat from the chaff.

This service is not for everyone – however for attorneys that come up against massive pre-trial expenses and for their clients that have no other way of sustenance until a settlement is reached pre-settlement funding does offer a viable alternative.

The Legal Aid Bill – Everyone Affected

John Prescott recently focused upon the affect the Bill will have upon individuals bringing claims against large organisations outside of the personal injury arena.

At the centre of these changes are the proposed changes to how no win no fee agreements operate.

Simply, this allows a Client to enter into an agreement with a lawyer or legal team that if they don’t win the case there will be no charge to them but if they are successful the costs incurred by their legal team will be recovered from the other side. Therefore, these no win no fee agreements are backed by policies of insurance to cover the Opponents’ costs if the Client loses.

John Prescott is right; Part 2 of the Legal Aid Bill (“the Bill”) as proposed is going to affect a lot of people. Widely published as dealing what are said to be excessive costs in personal injury cases, the Bill as drafted has wide-ranging consequences for any individual or company looking at bringing a case of any sort in the civil courts.

There have been a number of suggestions surrounding the Bill of what should happen with these agreements. These include the banning of being able to recover insurance premiums from a losing Opponent, Defendants not being able to recover their legal costs if they are successful (except in certain cases where the Claimants’ case was very weak) and an increase in damages of around 10% to partly pay for these costs.

The problem is, as John Prescott points out, these changes may mean that a winning Claimant ends up with nothing as the damages are taken up by legal costs and insurance premiums. Further, there have also been proposals to increase the small claims limit, where litigants normally appear without representation, to £15,000 or even £25,000. That is a very large amount of money at risk with no legal assistance.

However, the proposals in the Bill as drafted have an even wider ranging effect.

Any individual or small company unable to pay privately for a case in the civil courts is affected.

Defamation cases, defective goods, mis-sold cars, company disputes, every sort of claim in the civil courts will be changed by the proposed reforms. For example, we acted for a number of Defendants in precedent cases relating to alleged copyright infringement via file sharing programmes on the internet. Those Defendants were successfully defended under no win, no fee agreements and the legal costs they incurred recovered from the other side. However, it is only possible to act for the Defendants in that way through operation of the no win no fee system. Without that it is very unlikely they would have been able to obtain legal representation to defend themselves.

The position is the same for any Defendant as well as any Claimant. Any tradesman accused of negligent work, any homeowner involved in a legal dispute with a neighbour, any small business owner in dispute with a rival needs to be aware of these changes. The question is how will access to justice be maintained if the Bill goes through as proposed?

No win no fee agreements were introduced to England and Wales to allow for a reduction in legal aid during the 1990’s. With legal aid available to an ever diminishing number of individuals, the proposed changes to litigation funding through the Bill make unclear how individuals and smaller companies will be able to obtain access to justice.

Could the present be better regulated and managed to work for lots of cases? Every solicitor has seen cases where the other side’s costs appear wholly disproportionate and in many cases these are written down by a Judge to a sensible level. Therefore, it is not clear to many Lawyers why proper regulation and management of the present system cannot be successful.

Before these changes are made the Government needs to consider the real world ramifications for individuals and smaller companies who cannot afford large legal bills. At present the Bill raises a number of questions and it not clear what the answers are.

Real Estate Valuation – Legal Considerations

Legal considerations need to be part of any real estate valuation process. Some of the most significant issues that affect real estate values are zoning regulations, building codes and environmental regulations.

There are many rural areas within the United States that do not have zoning laws. This is due to their sparse populations and the low density of improved properties. They will however fall under the jurisdiction of state building codes and both federal and state environmental regulations.

Real Estate Valuation – Zoning

These regulations are promulgated by local governments. Their purpose is to regulate where and how real estate can be developed, improved upon, type of use permitted within a defined geographical area, density, property conformity, environmental and health issues and a myriad of other issues that govern the use of private property.

Different municipalities have different degrees of regulation depending upon their local character and economies. I live and work within a high-end, exclusive, second home market where the zoning regulations are exceptionally restrictive. The local government’s rationale is that they help maintain high property values and exclusivity.

General zoning classifications will define permitted uses within a defined geographical area. These can include industrial, commercial, residential, multi-family, agricultural and sub-categories of each.

These classifications will each have their own list of specific regulations. An area that is zoned residential could have restrictions on the minimum lot size, gross living area, height of structures, setbacks from front, side and rear lot lines, maximum lot coverage of principle dwelling and accessory structures, legal occupancy restrictions such as one, two or multi-family use. These are just a few examples and all municipalities will differ.

It is important for the home buyer or seller to be aware of the local zoning code when establishing a value for a property.

Real Estate Valuation – Building Codes

Building codes are promulgated by both local, state and in some cases federal governments. State governments will usually set minimum building standards which local governments will use as a base standard and add codes meaningful to their locally perceived needs.

Federal codes are usually the result of an area’s geographical location and its susceptibility to severe natural disasters. In my town new construction must conform to federal hurricane resistant standards.

Real Estate Valuation – Environmental Regulations

Once again environmental regulations start at the federal level under the authority of the Environmental Protection Agency, are augmented at the state level and expanded yet again by local municipalities.

The regulations cover endangered species, wetlands, water quality and a myriad of environmental issues that range from the reasonable to the absurd.

They are to be taken seriously as any violation can adversely affect the value of a property. The most common problem in my area is wetland encroachment. I have appraised properties that due to wetland setback regulations, over fifty percent of the property would be restricted from being built on or even disturbed.

Real Estate Valuation – Consult An Expert

During my many years in real estate sales, I witnessed numerous deals falter due to legal violations. These violations will surface after sales contracts are signed and the closing process is initiated.

Bank appraisers and insurance appraisers are the eyes on the ground for their employers and will report back to them any legal infractions after a physical inspection of the property. Surveyors will reveal on either an updated survey or new survey, zoning infractions such as illegal additions, accessory structures or encroachments that would affect a marketable title.

Too many times I have witnessed homeowners build garages, decks or other accessory structures without first obtaining a building permit and securing a subsequent Certificate of Occupancy.

These occurrences delay the closing date until they can be legally resolved. These delays can be deal killers. Depending upon the conditions stated in the sales contract, this can sometimes provide either party to the transaction with a way out.

Whether you are either buying or selling, a professional and experienced real estate broker can help you navigate the minefield of these legal issues by providing you with sound advice supported by their experience and knowledge.

Due to the massive amount of government regulations, closing a real estate deal today has become as complicated as filing a tax return.

The recourse is to hire a professional consultant. Someone who has experience dealing with these regulations, understands them and can provide direction to navigate through them.