What is Non-recourse Funding?
When seeking financial assistance from a third party, plaintiffs generally have two borrowing options: recourse and non-recourse. How these two options differ is related to how borrowers are obligated to pay back the money they owe.
With both types of monetary advances, the company has the right to take any assets that have been designated as collateral to secure the advance. If a person receives a recourse advance during litigation and loses his or her lawsuit and cannot pay back the debt, the company is allowed to seize that person’s assets — possibly his or her home, vehicle, and other valuable property. The company can even sue to garnish his or her wages or otherwise file collection actions.
On the other hand, if a person receives a non-recourse advance from a company and loses his or her lawsuit, that person is not personally obligated to pay back the company with these other assets. In other words, if a plaintiff loses the lawsuit, the non-recourse company loses its money because the funding company has agreed in advance to only recover against the lawsuit.
Non-recourse advances are generally more attractive than recourse advances, because borrowers do not risk losing their other property if they lose their lawsuit. Unfortunately, there’s often a catch to borrowing from the unregulated non-recourse industry. Companies can charge astronomical interest rates — sometimes as high as 50 to 100 percent. The risk these companies take is how they often validate their high rates.
Either way, it’s the plaintiff who is likely to suffer the financial burden in the long run. Financial assistance is an absolute necessity for some people when they need money during litigation. When they elect to borrow a non-recourse advance, however, there is a possibility that their settlement recovery amount can become less than the advance amount plus interest. Debt and injury-related bills continue to pile up, and the plaintiff could be left with no recovery and a huge debt.
The Milestone Foundation provides an alternative option for plaintiffs, so families can see their lawsuit through to the end without the burden of staggering interest rates. We provide financial assistance with low, simple interest — the lowest in the industry.