What is Non-Recourse Financing? And Why It Could Be Bad.

Good morning. I’m Marcus Michles here at the law firm a Michles & Booth, and welcome to this week’s installment of our video blog.

Michles & Booth, if you’re not familiar with us, we’re a law firm with offices in three cities. We do primarily personal injury work and exclusively represent the victims of accidents. If you’ve been injured in a car accident or nursing home problem, medical malpractice, workers comp, social security disability, we can help you.

Now we don’t work for insurance companies. We don’t work for big corporations. We work for individuals that have been hurt in accidents that weren’t their fault.

I want to talk to you about something today that’s getting to be a little more controversial than it was intended, and is becoming a bit of a problem in our industry, and that’s non-recourse financing.

Now you’re looking at me saying “Marcus, what on earth is non-recourse financing?” but if I say – a loan to someone with a pending case, you may be familiar with that by the advertising you see on TV.

There are companies that offer you money right now as a loan of sorts against your potential recovery or your potential case. Now the problem with that is when you make that deal you, if you’re the victim, are at your most vulnerable. You’ve been in an accident. You’ve missed time from work. You’ve got bills to pay, and these companies swoop in, and they say “we’re gonna lend you money now against your recovery down the road”.

It doesn’t sound like much of a down-side to you, but the devil is always in the details. Right? You’ve got to read that fine print.

Here’s the problem with non-recourse financing…

Florida has a law called a usury law that limits the amount of interest that can be legally charged on a loan. That number is 18%. If you borrow money from a bank or recognized lending institution, they cannot charge you more than 18%, but non-recourse financing companies are not technically lending you money. Technically they’re advancing you money,
so they’re not covered by the usury law, and if you look at it, they’re obtaining 30% to 40% to 50% interest on what they’re fronting you.

Now here’s the thing that’s really attractive about non-recourse financing.

If you don’t collect money at the end of your case, you don’t owe them any money back. It’s like a gift, but your lawyer has to pay them back if your lawyer collects money for you. And on the day that you settle your case, when all that money you thought you were going to get is going right through your hands into the non-recourse financing company, you’re going to be mad that your lawyer didn’t prevent you from making that deal.

Well, I used to work in the Army for a guy…his favorite saying was “a warm man can’t understand a cold man’s problems”. It meant that if you weren’t suffering, you didn’t understand the suffering of the men around you, and I always thought that was key. It’s…it’s a similar to the historical reference Marie Antoinette is rumored to have said. She’s the queen, if you recall to Louis the Sixteenth back in the 17th century in France. There was a revolution. People were starving. Marie Antoinette was this rich queen, and she said when told, supposedly, I mean you wonder if this is historically accurate, but she was told people were starving, and she said “Well, just let them eat cake”…so naïve that there was no food for these people to have.

It’s difficult when you’re a lawyer, and you represent folks that are down on their luck, have been injured, and you tell them don’t take this seemingly free money, because the day’s going to come when you’re going to lose all that money times 4 or 5.

I don’t want to be Marie Antoinette telling my clients not to, you know, just to eat cake, but at the same time, non-recourse financing is a horrible, horrible economic problem.

If you have to borrow money, you have to eat, you have to keep the lights on, you’ve got to do what you’ve got to do, but look for every opportunity to avoid non-recourse financing. Talk to your lawyer about options. Talk to your family. Do whatever you can to make it through that difficult period that all victims endure, and get through it without financing it through non-recourse financing, because at the end of the case, there may be nothing for you.

Now here’s the last thing I want you to consider about non-recourse financing. What the company is doing is they’re gambling on the success of your case, but they don’t know you. They know me. They’re gambling on the law firm’s ability to collect money for that individual. When you make that deal, you put a burden and an obligation on the lawyer to report directly to the non-recourse financing company. They ultimately become the client. They’re in your business, because we owe them money. It’s a terrible deal, and when they come to me and they say “what’s the value of this case, because we’re thinking about lending Mr. Jones some money”, I have to tell them the value of your case is $0 right now, because it’s early in the case. We don’t know what your injuries are going to be. We don’t know what the value of the case is going to be, so the value at that point is a guess. It creates a lot of problems in your case.

You want to do everything you can do to avoid non-recourse financing.

If you have questions, give me a call. Call any of the lawyers here. We all know about the non-recourse financing companies. You’ve heard of them…Oasis, some of the others…they run very attractive television commercials, but they prey upon you at your weakest and most vulnerable moment. So try to avoid them if you can.

I’m Marcus Michles, not Marie Antoinette, and I’m trying to keep you from making a bad deal. If you have questions, give us a call.

Tune in next week. We’ll do another installment of our video blog. Thanks for watching.