3 Reasons a Lender Could Deny Loans for Lawsuits

Loans for lawsuits are actually structured as advances on a settlement or lawsuit payout. A plaintiff in a case may anticipate a settlement at an unknown date in the future, but this settlement could take some time to come to fruition. In the meantime, the plaintiff may be racking up legal bills to attorneys and courts. A lawsuit loan can help leverage the future earnings expected through a cash advance today. These loans can be difficult to achieve for a number of reasons.

#1 Lawsuit Does Not Qualify

Lenders are very wary of extending these high-risk loans to plaintiffs who have a low chance of recovery. Most of these loans are structured in a way that relieves a borrower of an obligation to the loan payment if the lawsuit fails to recover the funds expected. As a result, the burden of risk lies heavily on the lender. To compensate for this, the lender will charge very high financing fees. The lender essentially greatly reduces the total settlement a borrower will receive through providing these services at such a high cost. For example, a lender may assess a lawsuit in a divorce to discover the spouse being sued has a deep asset base and the plaintiff has a legitimate, legal claim to those assets. This individual is more likely to get a loan than a person seeking recovery from a less legitimate claim.

#2 Borrower Does Not Qualify

Even if the lawsuit is a sure bet, the borrower may not be. Any loan a borrower applies for will only be funded after a sufficient credit check occurs. The lender may also require a background check on the borrower. This is not always required for personal loans. However, an individual's criminal background can come into play in any type of lawsuit. For example, if a plaintiff has previously been convicted of a crime like fraud, that person's ability to win a lawsuit involving fraud may be decreased. A credit check and background check will both be required for a lawsuit loan.

#3 Conflict of Interest

You cannot ask your lawyer for a loan for obvious conflict of interest considerations. Your lawyer may not be the only individual with an interest in the outcome of your case, however. If the lender has any reason to believe it has a personal or business stake in the outcome of your lawsuit, the lender is legally excluded from providing the funds. This is rare with most lenders, but it can occur in scenarios entirely unforeseen by the borrower. Some lenders, particularly alternative or high-risk lenders, are part of larger networks of businesses. For example, they can have connections with a university, bank or private institution. If your lawsuit carries implications for these business interests, the loan will be denied. Similarly, there can be individual conflicts if a member of the lender's organization or board is also involved in the lawsuit in some way. Lenders have to be extremely careful to avoid any potential conflict of interest in order to remain in good standing with governing boards. 

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