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Attorneys: The Top 8 Things You Should Avoid Saying to Clients About Legal Funding

Republished with permission from Legal Funding Central

As an attorney myself, I know sometimes we immediately regret things we say to clients. But sometimes it takes months to rue our words. Since legal funding (aka litigation finance) is still a novel concept and contingency clients can be anxious to begin with, here’s a list of the top eight things you should avoid saying about legal funding:

1.  “This will definitely work for you.

Maybe. Maybe not. And in the case of an advance on settlement (which is how legal funding works), it’s a short-term solution that may not always be appropriate. Be meticulous about the client profile before you recommend legal funding. Educate yourself more using LFC360’s Guides.

2.  Theres no risk to you.

There’s always the risk that the client will regret the decision to use third party legal funding, forget that the money needs to be repaid with a high rate of return, and be angry at you in the end (decreasing referrals). So while it’s true that legal funding advances are not paid back to the funder if there is no recovery, if the suit is successful the money is due plus a large rate of return.

3.  You need to do this.

If you’ve been in practice long enough, you know never to be so direct. Sometimes it may be in a lawyer’s best interest for the client to get legal funding, so your client doesn’t take a quick, under market settlement that will hurt your fees. But your responsibility is to the client first – not to your fee. So maybe what you really mean is I think you need to do this so we can get through this litigation and heres why.Whose pain is it anyway? Make sure the pathway to decision-making is 100% client directed.

4.  You get to keep the money, no matter what.

This is only if you lose your case, which hopefully won’t happen. More likely, you win and you have to pay it back, plus a nice return for the funder. In truth, you can never say “you’re going to have to pay the funder if you win” enough and, of course, constant reminders in writing are good insurance against pushback. Remember, too, there’s always the appellate process. If a plaintiff loses at trial but wins on appeal and is awarded a judgment, advanced funds may be owed (plus a healthy rate of return) years after payment.

5. Your personal credit doesnt matter.

While this is true from the perspective of the legal funder, it should always matter to you as the attorney because folks with bad credit can be a huge headache when the settlement sheet comes out. Legal funding helps desperate people. Keep that profile in mind for your own peace of mind.

6.  We just need to get past underwriting.

Oh, is that all? The underwriting process for legal funding is often grueling because the funder is taking a substantial risk. Especially in commercial litigation, “getting past underwriting” is no walk in the park. 

7.  Legal funding takes the pressure off.

Until the end, when the pressure to repay is back on again. Never allow your client’s focus to waver from the fact that legal funding is an advance, not an unconditional gift. It may ease initial financial concerns but pressure is never “off” in terms of repayment. This is another reason to encourage clients to only take what they need. The more they take, the less they get in the end.

8.  We maintain control of the lawsuit.

In more complicated cases, such as commercial cases, the legal funder may certainly have some questions and concerns. Just like an insurance company funding a defense, a legal funder may watch the process carefully and may interject at times. Prepare your client for this.