At Fair Rate Funding, we are often asked if we run credit checks in connection with the funding process. The answer to this question is no.” However, lawsuit loan companies routinely use other “checks” to help with your underwriting. This post will cover this in a bit more detail.
credit checks
Lenders use credit checks to assess the likelihood that a loan will be repaid and loan terms will be met. Technically, a lawsuit financing transaction is not a loan because, in the event the lawsuit is unsuccessful, the cash advance does not need to be repaid. Instead, the funder buys a portion of the proceeds from the case, if any. Because of this, the creditworthiness of the applicant is not an issue and credit rating is usually not a factor in the underwriting process. However, the applicant’s background can be an issue and must be taken into account in the decision to fund a particular case.
Background checks
When a case is filed for lawsuit cash advance financing, the insurer must evaluate all relevant facts. Since the lawsuit loan is not repaid unless the case is ultimately successful, lawsuit fund underwriters 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 just a few documents (for example, 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 greatest extent possible. One piece of information is the background of the applicant.
Pre-settlement loan companies typically use background checks only after a case is approved for funding. Typically, the lawsuit funding 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 liens or child support obligations.
However, in some cases, 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 perpetrating fraud. At best, his past transgressions contribute to his credibility as a truthful witness in the case.
Most of the time, background checks simply show misdemeanors and/or civil lawsuits. In the vast majority of circumstances, background checks do not disqualify a case from funding. However, as noted above, the presence of federal tax liens or child support obligations may make the lawsuit funding process more difficult.
When these situations arise, all hope is not lost as there may be steps to rectify the situation. For example, just because a tax lien or other priority judgment appears on the background report, it does not necessarily mean that a valid lien still exists. Often obligations like these are current or satisfied, but are not updated in the background check. In other cases, a common name may generate many links in a background search, but only after further investigation can the link be verified or considered in error.
As noted above, lawsuit finance companies use many tools to more accurately assess the risks associated with advancing cash against future proceeds from a pending lawsuit. Although applicants’ credit scores usually don’t really matter, background checks do play a role in the underwriting process.
Thank you for your interest in the pre-settlement loan business.
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