What Is A Non-Recourse Loan?

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What Is A Non-Recourse Loan?

Personal Injury Lawyer Ben Schwartz answers the question, what is a non-recourse Lawsuit Loan?

Hi, I am Ben Schwartz,

Today we are going to answer a viewer question. A guy named Rod wrote in and Rod said essentially, I have a personal injury case going, I have an attorney. And I need to get some money now; How can I do that? Should I get a lawsuit loan? So I thought, this is a really good question. It is a question that comes up quite often in my own legal practice where I will be representing someone in a personal injury case and these personal injury cases typically take a minimum of several months, a maximum of several years to resolve and people do not want to wait to get their money. People want to get their money now. I do not think it helps that there is, like a TV commercial on television right now as we record this video, that has people hanging out the window yelling, IT IS MY MONEY, I WANT IT NOW!

You know if it is a personal injury case it is not guaranteed money and it really is not your money until you get it in your hands, so getting it now may not be the best thing in your case in your situation. I just wanted to do a sort of general information video on this topic of lawsuit loans in personal injury cases. When you have a personal injury case pending, you can go to a lender and there are lenders that specialize in what is called non-recourse loans. They loan money to people who have a pending car accident personal injury case or a pending slip-and-fall personal injury case. And what they are doing is, they are appealing to consumers who have personal injury cases and they are telling consumers who have personal injury cases, listen we can loan you $500, $1,000 $2500 and if you win or settle your case, you pay us back. If you do not win or settle the case you do not have to pay us back. It is called non-recourse funding. If you want my opinion, it is about the worst deal you could ever think of. It is a complete and total scam, in my humble opinion.

I have people that come to me, and they say look my back is up against the wall. I need money to pay the mortgage. I need money to pay rent. I have a personal injury case pending with your office. Why don’t you help me complete the paperwork and do this loan? I always tell them it is a bad idea. Get the paperwork and let us have a look at it. When we get the paperwork, what you see is, this is how much we are going to loan you on this case. This is how much you are going to pay back. If you go in and calculate, pull out your calculator and calculate what the actual interest rate is on the money that you are borrowing as part of a non-recourse lawsuit loan it is absolutely staggering.

As I am recording this video, I am in the state of Delaware and Delaware has very lacks laws when it comes to usury. In other words, in Delaware, it is a legal environment that is very friendly to banks, credit card companies, and other lenders. If you ever want to see a state where predatory lending is allowed to exist the state of Delaware would probably be the place to look because the laws are so favorable to the lending industry.

The problem is, from my perspective, that the interest rate on these non-recourse loans is so incredibly high that if you get any money from a non-recourse personal injury loan, by the time the case settles and you have to pay that money back, you probably are going to pay back more than you are going to get out of your personal injury lawsuit case. What I like to do is, I like to get the paperwork. I like to sit down with my clients and go over the numbers and explain how interest works. Show them what their real interest rate is going to be and then we talked about, you know you may be paying 400% APR on one of these non-recourse loans. I am paying 4% not 400% on my home mortgage. Why is it that I am paying 4% when this company wants to loan you money and they want you to pay 400%? Like if we went to McDonald’s and I got a Big Mac and I paid, you know, five dollars for my lunch, would it be fair for McDonald’s to say to you, well you have to pay five hundred dollars for your lunch? That is ridiculous, it is completely unfair!

So, from my perspective, it is a terrible situation. I do not want my clients to have to put themselves into that situation where really, they are being victimized twice. You have been victimized once if you have got a personal injury case. You know you are minding your own attention, you are minding your own business, you know paying attention to the road and someone who was not paying attention rear-ends you; you have been made a victim. Well, why would you want to voluntarily become a victim again of a predatory lender who is going to charge you an interest rate in the hundreds of percentage points on an annualized basis? It just does not make any sense.

What I tell people, is if you need money your best bet is to go to friends and family and borrow money. Your next best bet would be to use the financial resources that you have available to you, such as a personal loan from a bank, a second mortgage on a home, or credit cards. The only time you would ever want to use non-recourse funding and get a loan that you have to pay back out of a personal injury settlement is, basically if your back is truly up against the wall and there is no other alternative and you are not going to be able to put food in your kid’s mouths and there is no other alternative. That is when you would use this. But quite frankly in a first-world country, I do not see a need for it.

So, I realize that is a lot of opinions and I hope that this video is something that if you are watching it, you can use and find helpful, and maybe it can give you some guidance if you are considering contacting one of these lawsuits lenders. You know it really is something that people do not talk about. In my opinion, people do not talk about it enough. You know a few years ago I was at a state trial lawyers convention and the topic came up. Several hundred attorneys were in the room at this convention hall, at a presentation, and the topic came up. I raised my hand, and I said I always tell my clients we do not do that. It is a terrible idea. The other attorneys in the room basically told me that I am a jerk for you know standing in my client’s way of getting their money. But I think they do not understand basic finance because anybody with a brain is going to know if you help your client sign up for a four hundred percent or six hundred percent APR loan, you are not doing them any favors. You are just I mean, what are you doing, you are harming your own client. I think it is a terrible idea.

I would be interested to know what you think. If you have had an experience if you are an attorney and you have had an experience where your client has gotten a lawsuit loan and had a successful experience and the lawsuit lender did not steal all the money from their settlement. I would be interested in knowing about that. If they are non-recourse lenders out there that are treating consumers fairly, I would be really interested to know about that. If you are someone who has had a personal injury case and you obtained a loan and then paid it back out of the personal injury case; you had a bad experience, you had a good experience, I would be interested to know about it.

I am trying to remain open-minded on this topic but at the same time I see a lot of abuse in the lending and in the financial industry and I think it has to stop. I am attorney Ben Schwartz. Hope you found this informative and entertaining. Leave us a comment and let us know what you think and if you have a question about personal injury law or litigation send me an email. My email address is ben.schwartz@schwartzandschwartz.com.

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