Why is meant by “non-recourse” when referring to lawsuit loans?
A. A lawsuit loan is really not a loan. It is actually an investment in the outcome of a lawsuit. When the plaintiff and attorney reach an out-of-court settlement or win the case at trial, the lawsuit loan plus the accumulated risk premium on that advance is repaid from the proceeds of the settlement. However, should the plaintiff and attorney fail to reach a settlement or lose the case in court, they owe nothing! The company that made the loan (or, more accurately, the investment) has “no recourse” to collect the money it advanced, thus the term “non-recourse”.
