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

June 18, 2018

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

The following is Part 4 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. Parts 1, 2 & 3 can be found here, here and here. What are the Risks in Probate Funding? Similar to California Probate Code 11604, (formerly Cal. Probate Code 1021.1), the Legislature, in enacting Probate Code 11604.5, has specifically indicated that Assignments relative to Probate Advances will not be set aside unless it is clear that the consideration paid is “grossly unreasonable”, at the time the transaction was executed. In fact, the Probate Court can presume the validity of an Assignment, in the absence of any objection raised or evidence submitted to the contrary. See Lynch v. Cox. (1978) 83 Cal. App. 3rd 296, 147 Cal. Rptr. 861. However, nothing in the Probate Code Sections 11604 or 11604.5 indicates a legislative intent to modify the law concerning the evaluation date to be utilized in appraising the fairness of a contract. In interpreting statutes, courts are required to do so in a manner which will produce a reasonable and not an absurd result. See Freedland v. Greco (1955) 45 Cal. 2d 462, 289 P.2d 463. Thus, in the absence of any evidence that the consideration received by the Assignor was grossly unreasonable, at the time received, the Assignee should be presumed to have had the benefit of all the protection the law provides. See Boyd v. Baker (1979) 98 Cal. App. 3rd 125, 159 Cal. Rptr. 298, 304. Moreover, given that the Probate Funding Company has no assurance of recovery at the time the Assignment is executed, nor any recourse against the Assignor/Heir, it is imperative that the Court consider the many risks a Probate Advance Company assumes during administration.    The following are just a few examples of those risks: *Mismanagement or conversion of Estate funds by the Personal Representative; *Unanticipated claims, such as Medical, Medicaid, Uninsured Medical Hospital or Nursing Bills; *Litigation, including but not limited to Will Contests, Property Disputes, Reimbursement Claims; *Inaction or Delays by the Personal Representative and/or Probate Attorney; *Previously unknown will discovered, disinheriting the Assignor; *Spousal/Domestic Partner Support Claims; *Tax Liability/Litigation; *Partnership Dissolution; *Foreclosure of Estate property; *Child Support Liens; *Unusually high extraordinary personal representative and/or Attorney Fee Claims; *Devaluation of Real Estate Market (i.e. 2008); *Bankruptcy by an heir; *Litigation against the heir. Alienation:  An Heir’s Right. Clearly, the Probate court has the jurisdiction to review an Assignment under Probate Code §11604.5 and consider whether the consideration paid was “grossly unreasonable” at the time it was executed. See Estate of Wright (2001) 90 Cal. App.4th 228, 108 Cal. Rptr. 2d 572.  Yet, it must be remembered that an heir’s right to alienate his/her interest is an important one and should not be infringed upon in a random or desultory manner. See Gold, et. Cal Civil Practice: Probate and Trust Proceedings (2005) §3:86, p. 3-78. Conditions restraining alienation, when repugnant to the interest created are void. See California Civil Code §711. In this vein, Courts should also consider the fact that the lion’s share of heirs who have obtained probate advances have done so out of their own free will, without solicitation and/or direct marketing.[1] Many heirs who research probate advances find that it is a preferred option to loans or other sources of funding, which take substantial time to qualify, require credit checks and extensive documentation and create personal obligations. Therefore, as long as terms of the Assignment are simple, straightforward and unambiguous – and it appears on its face that the Heir was given full disclosure and consented to the transaction – Courts should be hesitant to interfere with the Heirs’ right of alienations. Conclusion It is intellectually dishonest to ignore the obvious legal distinctions between Probate Assignments and Loans. Probate Funding Companies like IFC provide a valuable option for many heirs who would not be able to qualify for a traditional loan and/or do not wish to personally obligate themselves. Probate Funding Companies assume a myriad of risks while administration is pending with no guaranty of absolute repayment. In California, the Legislature has enacted Probate Code Section 11604.5 which governs the transfer of a beneficial interest in the form of an Assignment, and clearly distinguishes these transactions from loans. Further, that section affords the Probate Court all the authority it needs to review Assignments and determine whether, at the time the Assignment was given, the consideration paid was grossly unreasonable. In reviewing its terms, Courts must always consider an Heir’s inherent right of alienability. If fair disclosure was given by the Probate Advance Company, and it is found that the heir understood and consented to the Assignment, the Court should be very cautious in modifying the terms of an Assignment, ex post facto. In part 1 of this series, we cited just one case of many which demonstrates why Probate Funding is a useful option for so many heirs, and a far better option than a recourse loan.  In that case, Ms. Tanner would have likely lost her house to foreclosure if it was not for the availability of the Probate Advance provided by IFC. In hindsight, Helen Tanner made a very good deal for herself – even if she had the ability to qualify for a loan, the cost to her over such a protracted period would have been significantly greater. On the other hand, the return for IFC, some nine (9) years later, was considerably less than ideal. That being said, the end-result in Tanner was far better for IFC than in the numerous other Estates in which it has incurred significant losses through the years. Heirs/beneficiaries are fortunate that there are Companies willing to take risk and pay heirs a sum of money for a fixed Assignment during Probate administration with zero personal recourse against the heir. 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] Over 90% of heirs seek funding through IFC’s website, by other heirs who have already contracted with IFC, by lawyers or personal representatives.

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Consumer

ARC’s Eric Schuller: The Consumer’s Attorney Is an Essential Safeguard in Consumer Legal Funding

Debates over Consumer Legal Funding tend to focus on the financial relationship between the consumer and the funding company, but one key participant is often overlooked: the consumer's own attorney.

As reported by The National Law Review, Eric K. Schuller of the Alliance for Responsible Consumer Legal Funding (ARC) argues that attorney involvement is one of the strongest consumer protections in the marketplace. Because the product is tied to a pending claim, the consumer is always represented by counsel before a funder ever sees the file. Maine and Nebraska define an eligible consumer as one represented by an attorney, Missouri permits contracts only where the consumer is represented, and Kansas limits the product to plaintiffs in a pending civil action.

Of the thirteen state laws reviewed, nine require the consumer's attorney to sign an acknowledgment in the funding contract, and two more require the consumer to certify that counsel was involved. In most of those states, a contract without the acknowledgment is void. The attorney typically confirms that disclosures were reviewed with the client, that the attorney is retained on contingency, that proceeds will flow through a trust account or settlement fund, and that the attorney has received no referral fee or other consideration from the funder.

Schuller contrasts this with payday loans, credit cards, auto title loans and even mortgages, none of which require the borrower's lawyer to attest to anything. He also highlights disclosure rules, including cumulative-amount disclosures in six states and ten-business-day rescission windows in Kansas, New York, Ohio, Missouri and Utah.

As more states weigh legislation, Schuller presents the attestation model as a proven blueprint that addresses the transaction's real structure while preserving the consumer's right to decide.

Consumer

Equal Justice Under the Law: Why Access to Justice Must Include the Ability to Wait for Justice

The following was contributed by Eric K. Schuller, President, The Alliance for Responsible Consumer Legal Funding (ARC).

As the United States Supreme Court begins a new term, the words carved above the entrance to the Supreme Court Building deserve renewed attention: “Equal Justice Under Law.”

Those four words have greeted generations of Americans approaching the nation’s highest court. But the circumstances surrounding their placement on the Supreme Court Building make them particularly meaningful today.

The phrase was selected for the new Supreme Court Building in 1932, at a time when the United States was in the depths of the Great Depression. Millions of Americans were confronting unemployment, lost savings, financial insecurity, and uncertainty about their futures.

Against that backdrop, the nation chose to place a simple but powerful promise above the entrance to its highest court: Equal Justice Under Law.

Nearly a century later, that principle remains just as important.

Justice should not depend on wealth, influence, or a person's ability to withstand the financial pressures that can accompany a legal claim. Yet for many Americans, access to the courthouse is only part of the challenge. They also need the financial ability to remain there long enough for the legal process to work.

For an injured consumer pursuing a legitimate legal claim, a case can take months or even years to resolve. During that time, everyday financial obligations do not stop. Rent and mortgage payments still come due. Utilities must be paid. Families need food. Cars need gas, and medical and other household expenses continue.

That financial pressure can have a very real effect on access to justice.

The Economic Side of Access to Justice

When we discuss access to justice, the conversation often focuses on access to attorneys and courts. Those are essential, but there is another component that receives far less attention:

Can an individual afford to wait for a fair resolution of a claim?

A well-funded defendant or insurance company may have the financial resources to withstand a lengthy legal process. An individual consumer often does not.

That imbalance matters.

A person facing mounting household expenses may feel compelled to accept a settlement earlier than he or she otherwise would, not because the settlement represents the appropriate value of the claim, but because the electric bill, rent payment, or grocery bill cannot wait.

Consumer Legal Funding can help address that imbalance.

Consumer Legal Funding provides consumers with funds for personal and household needs while a legal claim is pending. It does not finance the litigation itself. The funds are not provided to pay attorneys, expert witnesses, court costs, or other expenses associated with prosecuting the case.

Instead, the money helps consumers meet the ordinary costs of living while their attorneys handle their legal claims.

Importantly, Consumer Legal Funding is non-recourse. Repayment depends upon the consumer obtaining a recovery from the legal claim. If there is no recovery, the consumer does not repay the funding.

Justice Should Not Have a Financial Clock

The principle of “Equal Justice Under Law” does not mean that every litigant will receive the same outcome. Nor should it.

It means that our system should provide a fair opportunity for claims and defenses to be considered on their merits.

Financial hardship should not become an unofficial clock running against an injured consumer.

Imagine two individuals with equally valid claims. One has enough savings to support a family for two years while the case proceeds. The other lives paycheck to paycheck and, because of an injury, may be unable to work at full capacity.

Both individuals technically have access to the same courts. Both may have competent attorneys. Both are protected by the same laws.

But their practical ability to pursue justice can be very different.

If one can afford to wait while the other must accept an early settlement simply to keep a roof over the family's head, we should recognize that economic circumstances have affected their ability to allow the legal process to work.

Consumer Legal Funding cannot solve every financial challenge confronting an injured consumer. But for consumers who choose it, funding can provide something extraordinarily important: Time.

Time to allow their attorneys to do their jobs.

Time for the facts to be developed.

Time for negotiations to proceed.

And time to make decisions about a legal claim based upon the merits of the case rather than the immediate pressure of household bills.

Protecting Consumers While Preserving Choice

Responsible regulation has an important role to play.

Consumers should receive clear contracts and disclosures. They should understand the cost of a funding transaction. Attorneys should acknowledge that their clients have entered into these agreements. Funding companies should never control litigation strategy, direct attorneys, or interfere with settlement decisions.

Those protections strengthen the marketplace.

But regulation should protect consumer choice, not eliminate it.

Policies that make Consumer Legal Funding unavailable or economically impractical do not eliminate the financial hardship that caused a consumer to seek funding in the first place.

The rent is still due.

The utility company still expects payment.

Groceries still have to be purchased.

Removing an option is not the same as removing the need.

A Promise That Still Matters

There is something especially significant about the fact that “Equal Justice Under Law” was placed on the Supreme Court Building during one of the most economically difficult periods in American history.

In 1932, financial hardship was not an abstract concept. It was a reality confronting millions of American families.

Yet at precisely that moment, as the country struggled through an extraordinary financial crisis, those words were chosen for the entrance to an institution intended to represent the rule of law and equal justice.

That history should remind us of something important today.

Economic hardship and access to justice have never existed in separate worlds

A legal right may exist on paper, but exercising that right can become extraordinarily difficult when a person is simultaneously worried about paying the mortgage, keeping the electricity on, buying groceries, or putting gas in the car.

As the Supreme Court begins another term, Americans will once again watch the Justices consider questions involving constitutional rights, federal law, the authority of government, and the responsibilities of individuals and institutions.

The cases will differ. The legal questions will differ. And reasonable people will disagree about how many of those cases should be decided.

But the words above the Court remain constant: Equal Justice Under Law.

Nearly a century after those words were placed on the Supreme Court Building during a period of profound economic uncertainty, their message remains relevant.

Justice should not belong only to those who can afford to wait for it.

Consumer Legal Funding helps give individuals the financial breathing room to allow the legal process to work. It does not determine the outcome of a case. It does not finance the litigation. And it does not replace the attorney-client relationship.

It helps consumers address the realities of everyday life while their legal claims proceed.

That is why Consumer Legal Funding belongs in the broader access-to-justice conversation.

Because the promise carved above our nation's highest court should extend beyond the courthouse steps. The strength of a person's legal rights should not be determined by the size of their bank account.

Consumer Legal Funding: Funding Lives, Not Litigation.

A version of this commentary first appeared in The National Law Review.

Commercial Consumer

ClaimAngel Reports $144M Deployed and 30,000 Fundings on Consumer Legal Funding Marketplace

South Florida consumer legal funding marketplace ClaimAngel says it has deployed more than $144 million across over 30,000 individual fundings since launching in April 2023, positioning standardised pricing as its answer to the cost criticisms that dog the consumer funding sector.

As reported by Refresh Miami, the platform runs a marketplace in which 27 funding providers compete for cases, with funders reserving a case in an average of 11 seconds. Advances carry 27.8% simple interest with no compounding and a 2x cap on total repayment, and remain non-recourse — plaintiffs owe nothing if the case is lost.

The company reports serving more than 14,500 plaintiffs and over 750 law firms, with 46 employees. A Case Equity product lets plaintiffs draw against expected case value for living expenses while litigation is pending.

ClaimAngel was co-founded by Jeremy Alters, a trial lawyer of more than two decades who was disbarred by the Florida Supreme Court in 2018 for misusing client funds, and his son Logan Alters. "I did things wrong. They were my fault. I take full responsibility for it," Jeremy Alters said, describing the company as "born out of an ethics issue." He applied for readmission to the Florida Bar in 2025.

Planned expansions include attorney funding, a secondary marketplace for buying and selling existing positions, and AngelScore, a data-driven underwriting system.