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What is Pre-Settlement Funding Underwriting?

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Pre-settlement funding underwriter

Quick Answer: Lawsuit loan underwriting is the process of evaluating your case’s strengths, potential settlement value, and the chance of winning to determine funding eligibility. Pre-settlement funding helps you cover expenses during a civil lawsuit, and you only repay if you win.

When you are involved in a civil lawsuit, pre-settlement funding, also known as a lawsuit cash advance, gives you money upfront against your prospective settlement, which you only pay it back if you win. To decide if you can get the funding, the lenders’ underwriting will review how strong your case is, how much you might get from the settlement, and your chances of winning.

Curious about how your cash advance will be decided? The underwriting process determines if you can get financial support while your case is pending.

Understanding Pre-Settlement Funding Underwriting: How It Works and Why It Matters

Underwriting in pre-settlement funding involves evaluating the risks associated with a lawsuit before providing financing. Experienced personal injury attorneys, known as underwriters, handle these evaluations. They determine who gets funding and the loan amounts.

Why Underwriting Matters

Why is underwriting so important? It’s simple. It protects both the plaintiff and the funding company. For you, it means you can confidently receive up to 10% of your estimated settlement to cover your immediate expenses—like medical bills, rent, utilities, and groceries. This limit protects you from owing more than fair if the case settles for less than expected.

For funding companies, underwriting reduces the risk of non-payment. Without them, the company’s operations would take a hit, and their ability to support those seeking justice would fall apart.

The Underwriting Process

Unlike traditional loans, legal funding underwriting doesn’t involve scrutinizing your credit history and taking sneaky peaks at your income. Instead, underwriters focus on estimating the future compensation you might or might not receive from the settlement or lawsuit award. Here’s a closer look at how the process works:

  1. Initial Application: Start by submitting an application online or by phone.
  2. Case Documentation: Next, your attorney submits all the necessary case documents to the lender’s underwriter. The accuracy and completeness of these documents is absolutely necessary for qualification. Without an attorney, you won’t be approved. 
  3. Case Risk Assessment: Experts evaluate your case’s merits, settlement value, likelihood of winning, and timeline, usually within 24-48 hours.
  4. Offer and Agreement: If your case is strong, you’ll receive a funding offer detailing the loan amount and terms. You and your attorney review and sign the contract. Funds are then quickly disbursed, typically within a few hours to a day.

How Underwriters Assess the Strength of a Lawsuit

To minimize risk, underwriters evaluate several factors to determine legal funding approval. They approve loans for cases with strong merits and a high likelihood of recovery.

Fault Laws

Underwriters look at state fault laws, including comparative and contributory negligence. These laws determine who is at fault and what damages you can claim. For instance, contributory negligence states are non-plaintiff-friendly, which means that any blame on your part could bar your claim for damages

Insurance 

The defendant’s insurance coverage is another underwriting requirement. It sets the maximum amount the insurance company will pay. Without this info, underwriters might overestimate your case’s value, which in turn, increases the risk. If the defendant’s insurance is low, having underinsured/uninsured motorist coverage can help you get funding.

Supporting Evidence

The next step is looking into the evidence that shows the other party’s fault These include, but aren’t limited to medical records, police reports, legal filings, what witnesses said, and any available video footage. They also review medical expert reports to verify the extent of your injuries and expected recovery.

Liens

Underwriters also check for any existing liens on the potential settlement, such as spousal or child support, bankruptcy liens, or medical liens. Liens take precedence over settlement funds, so they must be satisfied first. This affects the amount of funding available to you.

Injury and Damage Severity

The extent of your injuries or damages often correlates with the strength of your case. Serious injuries often mean higher expenses, longer recovery times, and more pain and suffering, which can increase your claim’s value. Underwriting will also consider your long-term prognosis, such as future surgeries.

Plaintiff’s Past

Your credibility and consistency in your case matter. Underwriters check for pre-existing injuries or previous lawsuit advances. Some companies have strict policies against funding plaintiffs with criminal backgrounds, while others do not. Cases of wrongful imprisonment are usually exempt from this policy.

Types of Cases Evaluated by Pre-Settlement Funding Underwriters

  • Personal Injury CasesPersonal injury cases, like car accidents, slip and fall incidents, and nursing home negligence, are typically favored by funding companies. These cases often have a high likelihood of a favorable settlement, making them relatively low-risk.
  • Wrongful Death Litigation. Wrongful death claims involve major damages, such as funeral expenses and loss of income. These high potential compensations make wrongful death cases of interest to underwriters.
  • Wrongful Imprisonment Claims. Cases of wrongful imprisonment often have clear and compelling evidence like DNA testing. These factors reduce risk and increase the potential return on investment, making them valuable despite their complicated and extensive nature.
  • Workers’ Compensation Cases. Pre-settlement funding operates as a lien on the settlement, meaning the attorney handles the repayment directly from the settlement funds. However, in states where compensation is paid directly to the plaintiff, there’s no attorney-managed disbursement. This makes it difficult to enforce the lien and increases the risk of non-repayment for funding companies. Consequently, workers’ compensation funding isn’t available in all states.
  •  Medical Malpractice CasesCases involving medical errors or negligence involve severe injuries and lengthy recovery periods, often leading to substantial recovery. The need for expert testimony is high, but the potential recovery makes these cases worth funding.
  • Workplace Injuries and Labor Law Cases. Workplace injury cases due to employer negligence or safety violations are particularly attractive to funding companies. These cases, despite involving extensive trials, offer strong investment opportunities due to potential high damages.
  • Product Liability CasesWhile challenging, certain product liability cases with strong evidence, serious damages can attract underwriters. These involve harm from defective products or pharmaceuticals.
  • Mass Tort Cases. Mass tort cases, involving many plaintiffs against a few defendants, are favored due to economies of scale. Well-documented liability through company records and regulatory findings makes these cases suitable for legal financing.
  • Commercial LitigationCommercial litigation involves legal disputes between businesses or between a business and an individual. While these cases can involve millions of dollars, their high litigation costs, questions of business solvency, extensive discovery process, numerous motions, potential appeals, and judicial interpretation of contracts make them too risky for underwriters to fund. As a result, only a small percentage of commercial litigation cases are considered for funding each year.
  • Employment Claims. Employment claims like wage violations and wrongful termination are less frequently funded due to unpredictable settlements. However, cases with existing settlement offers are more likely to receive funding.
  • Class-Action Lawsuits. Despite their potential for large settlements, class action lawsuits are generally not favored by lawsuit loan underwriters. The complicated processes of class certification, court rulings, proving widespread harm, and distributing settlements among many plaintiffs deter funding companies from investing in these cases.

This article might interest you: Which Lawsuits Get Priority in Pre-Settlement Funding?

Your Role in the Process

Taking an active role in the pre-settlement funding underwriting process can contribute to a smoother experience. Here are some tips:

  • Be transparent about your case.
  • Work closely with your attorney.
  • Respond quickly to information requests.
  • Understand the underwriting process.

The Takeaway

Pre-settlement funding underwriting is a detailed, expert-driven process designed to balance the needs of plaintiffs with the realities of legal outcomes. Now that you know the essentials, you can proceed with confidence in applying for a lawsuit loan.

Remember, keeping your attorney and the funding company informed, and being ready to provide additional information if needed, can make a big difference in the process.

If you’re considering pre-settlement legal funding, our team is here to guide you every step of the way. Contact us today at (888) 711-3599 to learn more about how we can help you secure the financial assistance you need while your accident case is pending.

At Baker Street Funding, we give you the inside scoop on pre-settlement funding by covering a variety of ... financing and legal topics to help you made the best financial decision for you and for your case. Our experts break down complex ideas in a way that's easy to understand so you can stay informed on current trends as well as tips and fact checked information by the CEO and founder, Daniel Digiaimo. Furthermore, Despite its name, consumer legal funding is not a loan. If you don't win your case, no payment needs to be made back. To avoid confusion and simplify matters on, we'll use the word "loan" throughout this article.

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