At Fair Rate Funding, we are frequently asked if we conduct credit checks in relation to the financing process. The answer to this question is no. “However, lawsuit loan companies routinely use other” checks “to aid underwriting. This post will discuss this in a little more detail.

Credit checks

Lenders use credit checks to assess the likelihood that a loan will be repaid and the terms of the loan will be met. A lawsuit financing transaction is not technically a loan because, in the event that the lawsuit is unsuccessful, the cash advance does not need to be repaid. Instead, the funder buys a portion of the proceeds of the case, if applicable. Because of this, the creditworthiness of the applicant is not an issue and credit rating is not usually a factor in the underwriting process. However, the applicant’s background can be a problem and should be taken into account in the decision to fund a particular case.

Background checks

When a case is presented for the financing of cash advances of a lawsuit, the insurer must evaluate all the relevant facts. Since the lawsuit loan is not repaid unless the case is ultimately successful, underwriters of lawsuit financing face a difficult challenge because they must base their decision on a limited amount of information. In fact, thousands of cases are funded each week based on a few documents (eg, police report, insurance information, and medical records) and a phone call to the attorney’s office.

What little information the subscriber has should be used to the maximum. One piece of information is the applicant’s background.

Pre-deal loan companies typically use background checks only after a case financing is approved. Typically, the lawsuit financing team wants to see if there are other potential lien holders who would be in a senior position in the case. Examples may include federal tax liaisons or child support obligations.

In some cases, however, a background check may be used as part of the approval process. For example, if a case is approved, but the applicant’s background check shows a history of fraud, insurers would seriously consider this fact when deciding to offer a cash advance. In the worst case, the applicant could be committing fraud. At best, your past transgressions are based on your credibility as a truthful witness in the case.

Most of the time, background checks simply show misdemeanors and / or civil convictions. In the vast majority of circumstances, a background check does not disqualify a case from funding. However, as noted above, the presence of federal tax liens or child support obligations can affect the lawsuit funding process.

When these situations arise, all hope is not lost, as there may be steps to rectify the situation. For example, just because a tax link or other priority judgment is listed on the background report does not necessarily mean that there is still a valid link. Often times obligations like these are in effect or otherwise met, but are not updated on the background check. In other cases, a common name can generate many links in a background search, but only after further investigation can the link be verified or considered an error.

As noted above, companies that fund lawsuits use many tools to more accurately assess the risks associated with advancing cash against future proceeds from a pending lawsuit. Although applicants’ credit scores are generally of no real importance, background checks play a role in the underwriting process.

Thank you for your interest in the pre-settlement loan business.

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