There are many terms commonly used in the legal funding industry and are important for plaintiffs to understand when entering into funding agreements. This week we’re taking a look at case evaluation and how it works in the legal funding process.
Collateral is sometimes used as security for the funding advance, especially in recourse funding arrangements where the plaintiff may be required to repay the advance regardless of the case outcome.
The use of collateral varies depending on the funding company and the specific terms of the funding agreement. Plaintiffs should carefully review the terms of the agreement, including any collateral requirements, before entering into a legal funding arrangement. Additionally, non-recourse funding arrangements typically do not require collateral, as repayment is contingent upon the successful outcome of the case rather than the pledging of assets.
The most common types of collateral used in legal funding are listed below.
Real Estate
Property such as homes, land, or commercial real estate can be used as collateral to secure a legal funding advance. Real estate is often valued highly and provides a tangible asset for the funding company to seize in the event of non-repayment.
Vehicles
Automobiles, trucks, boats, or other vehicles may be used as collateral. The value of the vehicle is assessed, and if it meets the funding company’s criteria, it can be used to secure the advance.
Investment Accounts
Stocks, bonds, mutual funds, retirement accounts, and other investment accounts can be used as collateral. These accounts often have a liquid value that can be easily accessed by the funding company if necessary.
Bank Accounts
Savings accounts, certificates of deposit (CDs), or other liquid assets held in bank accounts can be pledged as collateral. These assets provide a readily accessible source of funds for the funding company in case of non-repayment.
Life Insurance Policies
Cash-value life insurance policies can be used as collateral. The cash value serves as security for the advance, and the funding company can access the policy’s value if needed.
Personal Property
Other valuable personal property such as jewelry, art, antiques, or valuable collectibles may be used as collateral. These assets are assessed for their market value and can be seized by the funding company if necessary.
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