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Probate Funding: A Useful Option for So Many (Part 2 of 4)

Probate Funding: A Useful Option for So Many (Part 2 of 4)

The following is Part 2 of our 4-Part series on Probate Funding by Steven D. Schroeder, Esq., General Counsel/Sr. Vice President at Inheritance Funding Company, Inc. since 2004. Part 1 can be found here. Comparing Assignments with Loans: Apples Are Not Oranges As previously stated, there has been some recent criticism of the companies engaged in Probate funding.[1] An Article entitled: “Probate Lending” started and ended with the premise that Probate Assignments are in fact disguised loans and should be regulated as such. Despite the predetermined conclusion by one author, in fact, the law treats Assignments and Loans quite differently and those distinctions are significant.[2]
  1. What is an Assignment?
An Assignment is a term that may comprehensively cover the transfer of legal title to any kind of property. Commercial Discount Co. v. Cowen (1941) 18 Cal. 2d 601, 614; see also In re: Kling (1919) 44 Cal. App. 267, 270, 186 P. 152. When valid consideration is given, the Assignee acquires no greater rights or title than what is assigned. In other words, the Assignee steps in the shoes of the Assignor’s rights, subject to any defenses that an obligor may have against Assignor, prior to Notice of Assignment. See Parker v. Funk (1921) 185 Cal. 347, 352, 197 P. 83.  See also Cal. Civil Code §1459; Cal. Code of Civil Procedure §369. An Assignment may be oral or written and no special form is necessary provided that the transfer is clearly intended as a present assignment of interest by the Assignor. If only a part of the Assignor’s interest is transferred, it may nevertheless be enforced as an equitable Assignment. See McDaniel v. Maxwell, (1891) 21 Or. 202, 205, 27 P. 952. It has been held that any expectancy may be assigned or renounced. See Prudential Ins. Co. of America v. Broadhurst 157 Cal. App. 2d 375, 321 P. 2d 75. Similarly, a beneficiary may assign or otherwise transfer his or her interest in an Estate prior to distribution. See Gold et. al., Cal Civil Practice: Probate and Trust Proceedings (2005) §3:86, p. 3-78. Probate Assignments are those taken prior to the completion of probate administration for which an heir/beneficiary transfers a portion of his/her expected inheritance in the estate in consideration of a cash advance (i.e. the purchase price).
  1. What is a loan?
A loan agreement is a contract between a borrower and a lender which governs the mutual promises made by each party. There are many types of loan agreements, including but not limited to: “home loans”, “equity loans”, “car loans”, “mortgage loan facilities agreements”, “revolvers”, “term loans” and “working capital loans” just to name a few. In contrast to Assignments, loans do not transfer legal title and instead are contracts in which the borrower pays back money at a later date, together with accrued interest to the lender. A loan creates a debtor and creditor relationship that is not terminated until the sum borrowed plus the agreed upon interest is paid in full. Milana v. Credit Discount Co. (1945) 27 Cal. 2d 335, 163 P.2d.869. In order to constitute a loan, there must be a contract whereby the lender transfers a sum of money which the borrower agrees to repay absolutely; together with such additional sums as may be agreed upon for its use.[3] The nature of a loan transaction, can be inferred from its objective characteristics. Such indicia include: presence or absence of debt instruments, collateral, interest provisions, repayment schedules or deadlines, book entries recording loan balances or interest, payments and any other attributes indicative of an enforceable obligation to repay the sums advance. Id, citing Fin Hay Realty Co. v. United States 398, F.2d 694, 696 (3d Circ. 1968). Also, unlike Assignments, lenders typically insist upon several credit worthy factors prior to funding. For example, the “borrower” makes representations about his/her character including creditworthiness, cash flow and any collateral that he/she may pledge as security for a loan. These creditworthy representations are taken into consideration because the lender needs to determine under what terms, if any, they are prepared to loan money and whether the borrower has the wherewithal to pay it back, generally within a certain time frame. In cases of Probate Assignments, an Advance Company rarely considers creditworthiness of the Assignee, because it is not he/she who is responsible to satisfy the obligation. That obligation falls upon the Estate or Trust fiduciary. In addition, Probate Assignments cannot be deemed to be a loan if the return is contingent on the happening of some future event, (i.e. Final Distribution). Altman v. Altman (Ch. 1950) 8 N.J. Super.301, 72 A.2d 536., Arneill Ranch v. Petit 64 Cal. App. 3d, 277, 134 Cal. Rptr. 456, 461-463 (Cal. Ct. App. 1976).  True Probate Assignments, executed in consideration of an advance, have no time limit for payment, nor do they accrue interest post-funding. Furthermore, an assignee is not required to make periodic interest payments and in the vast majority of cases no payment at all. Moreover, although loans are often secured against real property, Assignments in Probate should not be secured. Estate Property is generally not owned or distributed to the heir at the time the Assignment is executed. A critical distinction between Probate Assignments and loans, is that when an Assignment is executed, there is no unconditional obligation that the Assigned amount be paid and/or when it might be paid. Once assigned, the Assignor owes no further obligation to the Assignee over those rights sold/assigned. And, the Assignee has no recourse against the Assignee/Heir should the heir’s distributive share be less that what he/she assigns. In other words, to “constitute [a] true loan [] there must have been, at the time the funds were transferred, an unconditional obligation on the part of the transferee to repay the money, and an unconditional intention on the part of the transferor to secure repayment.”  Geftman v. Comm’r 154 F3rd 61, 68 (3d Cir. 1998) quoting Haag v. Comm’r 88.T.C. 604, 615-16, 1987 WL 49288 aff’d 855 F. 2d 855 (8th Cir. 1987). Many jurisdictions in addition to California, recognize that the absolute right to repayment or some form of security for the debt as the defining characteristics of loan.[4] While the structure and elements slightly vary, the following is a side by side comparison of some of the basic distinctions of loans and Assignments in Probate Funding:
LoansAssignments
Tenor: This is the time limit for repaying the loan as well as the interest rate charge.Tenor: No time limit for payment. No interest accrues.
Obligor on the Assignment: The Borrower is contractually obligated to repay.Assignee on the Assignment: Assignee/Heir does not pay anythingA third party (i.e. administrator pays the Assignment.
Recourse: The Borrower is unconditionally obligated.Recourse: In absence of fraud, the Assignee has no recourse should his interest be less than what is assigned or even $0.00.
Interest Payment and Capitalization: The interest rate charge for the loan and time limit for interest payment. It also stipulates conditions under which unpaid Interest will be added to the outstanding loans.Interest Payment and Capitalization: Interest does not accrue post funding and the Assignment is fixed.
Penalties: Late payments are typically subject to penalties and/or trigger default.Penalties: No payments are due.  No Default deadlines for payment imposed on Assignee/Heir.
Creditworthiness: Essential for approvalCreditworthiness: Not essential
Default: Foreclosure is an option; a borrower could bear default.Default: No penalty no matter when Assignment is paid. Assignments are not secured. Foreclosure is not an option.
Moreover, given the uncertain time frame for recovery and absence of recourse against the Assignee/Heir, it would be impossible to assign an interest rate or make a Truth in Lending (“TILA”) disclosure, 15 U.S.C. §1601 (2012). Since the purpose of the TILA is to assure meaningful disclosure, the simplicity of an Assignment eliminates any necessity of making interest rate disclosures as required by interest bearing loans. When the Assignor sells a portion of his/her interest for a fixed sum Assignment, what additional disclosures are necessary? In short, there are many significant differences between Probate Assignments and Loans. Courts and Legislatures throughout the country have recognized these distinctions and have considered them when regulating or providing necessary review over either product. Stay tuned for Part 3 of our 4-Part series, where we discuss California’s regulation of Probate Funding, and how such regulation can serve as a model for other jurisdictions. Steven D. Schroeder has been General Counsel/Sr. Vice President at Inheritance Funding Company, Inc. since 2004. Active Attorney in good standing, licensed to practice before all Courts in the State of California since 1985 and a Registered Attorney with the U.S. Patent and Trademark Office.  —- [1]  David Horton and Andrea Chandrasenkher, supra (2016) 126 Yale 105-107.  Professors Horton and Chandrasekher analogized Litigation Funding to the ancient doctrine of champerty even though acknowledging California has never recognized the doctrine, See e.g. Mathewson v. Fitch, 22 Cal. 86, 95 (1863). [2] The conclusions in Probate Lending were debunked, by Jeremy Kidd, Ph.D. Associate Professor of Law, Mercer, Probate Funding and the Litigation Funding Debate, See Wealth Strategies Journal, August 14, 2017. [3] 47 C.J.S. Interest and Usury; Consumer Credit Section 123 (1982). [4] See In re Nelson’s Estate (1930) 211, Iowa 168; Dobb v. Yari, (NJ 1996), 927 F. Supp 814; Turcotte v. Trevino (1976) 544, S.W. 2d 463; quoting.47 C.J,S. Interest and Usury; Consumer Credit Section 123 (1982); Turcotte v. Trevino 544 S.W.2d 463 (1976), Cherokee Funding, LLC v. Ruth (2017) A17A0132; “…New York recognizes the absolute right of repayment or some form of security for the debt as the defining characteristic of a loan.   Its courts have explicitly stated that ‘[f]or a true loan it is essential to provide for repayment absolutely and all events or principal in some way to be secured…’ MoneyForLawsuits VLP v. Row No. 4:10-CV-11537]. Thus, a transaction that neither guarantees the lender an absolute right to repayment nor provides it with security for the debt is not a loan, and as a result, cannot be subject to New York’s usury laws…”   (emphasis added). “…In Brewer v. Brewer, 386 Md. 183, 196-197 (2005), the Court of Appeals held that “redistribution agreements are permissible and, so long as they comply with the requirements of basis contract law, neither the personal representative nor the court has any authority to disapprove or veto them.  See also In re: Garcelon’s Estate 38 P. 414, 415 (Cal. 1894), Haydon v. Eldred, 21 S. W.457, 458 (Ky 1929). See Massey vs. Inheritance Funding Company, Inc. Court of Appeals, 7th Dist (TX), 07-16-00148-CV.
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Karyn Cerulli Joins High Rise Financial to Bolster PI Funding

By John Freund |

High Rise Financial has added industry veteran Karyn Cerulli as Regional Vice President of Sales, deepening the Los-Angeles-based funder’s reach into the personal-injury bar. Cerulli spent more than a decade with FindLaw and Thomson Reuters, where she partnered with firms on digital marketing and business-development strategies. In her new role she pivots from lead generation to liquidity, positioning High Rise’s non-recourse advances as a client-care tool for plaintiffs’ firms facing lengthy litigation timelines.

A post on LinkedIn sets out Cerulli’s agenda: hands-on attorney support, a “best rate guarantee,” and white-glove service that places “zero pressure” on case strategy while delivering cash within days. Cerulli frames High Rise as a complement rather than a competitor to existing funders, inviting firms to keep her on standby as a “second option” or safety net when primary partners stall or pricing shifts.

The move comes amid rapid growth for High Rise, which secured a $100 million senior credit facility late last year to expand its pre-settlement portfolio and medical-lien program. The funder touts 24-hour approvals, no credit checks, and repayment only from a successful resolution—features that resonate with Cerulli’s long-time focus on consumer-friendly legal services. With her network of plaintiff-side marketers and case managers, the company hopes to accelerate origination across high-volume auto and premises claims.

Golden Pear Upsizes Corporate Note to $78.7M Amid Growth Plans

By John Freund |

Golden Pear Funding has extended and upsized its investment-grade corporate note to $78.7 million, further bolstering the firm's capacity to serve the expanding litigation finance sector. The New York-based funder, a national leader in both pre-settlement and medical receivables financing, said the proceeds will support working capital and fuel strategic growth initiatives.

A press release from Golden Pear outlines how the capital raise reflects continued investor confidence in the firm’s business model. CEO Gary Amos noted that the infusion is critical as Golden Pear seeks to scale alongside the “rapidly expanding litigation finance market.” CFO Daniel Amsellem added that the new funding aligns with the company’s capital allocation strategy, aimed at optimizing operational efficiency and executing strategic projects.

Brean Capital, LLC acted as the exclusive financial advisor and sole placement agent on the transaction.

Founded in 2008, Golden Pear has funded more than $1.1 billion to over 87,000 clients and remains one of the largest specialty finance companies in the U.S. Its business model spans legal case funding and medical receivables purchasing, with backing from a network of private equity partners that provide institutional support for continued expansion.

Mayfair Legal Launches Wildfire Support Program for Plaintiffs

By John Freund |

Mayfair Legal Funding has unveiled a new initiative aimed at aiding wildfire victims in Los Angeles and Maui by providing pre-settlement advances tailored to individuals pursuing legal claims related to recent wildfire disasters. The program seeks to ease the financial burden on plaintiffs during the lengthy litigation process, allowing them to cover essential living expenses and medical costs without being forced into early or inadequate settlements.

An article in OpenPR reports that Mayfair’s program will provide wildfire-impacted claimants with cash advances while their cases proceed through court or settlement negotiations. The funding is non-recourse, meaning recipients are only obligated to repay the advance if their case is successful. This offering is particularly timely in light of the mounting legal battles related to utility-sparked wildfires in California and the catastrophic 2023 fires in Maui, both of which have left thousands seeking legal recourse and financial recovery.

Mayfair emphasized that this initiative aligns with its mission to ensure access to justice regardless of a claimant’s financial status. “We believe that no one should have to choose between basic survival and pursuing a rightful claim,” said a spokesperson for the funder, noting that the company’s underwriting process is designed for speed and minimal paperwork.

With natural disasters on the rise and litigation timelines stretching longer than ever, targeted pre-settlement funding like this may become an increasingly vital tool for plaintiffs. The wildfire-specific program from Mayfair underscores a growing trend of funders developing specialized products for mass torts and disaster-related litigation—an area likely to see heightened investor and regulatory attention in the years ahead.