A new breed of investments—litigation funding—is gaining traction in the United States. Litigation funding is open only to wealthy and institutional investors, but the average investor still might benefit.
In litigation funding, investors typically provide nonrecourse loans, which are loans that don’t have to be repaid, in exchange for a portion of any lawsuit winnings. Some states prohibit the practice and others don’t address it, says Maya Steinitz, who is an associate professor at University of Iowa College of Law.
Still, if you have a lawsuit that has a potentially big payout, such as a personal-injury lawsuit, and you lack the money to pursue the case, litigation funding could pay off. However, nonrecourse loans take 33 percent to 50 percent of your recovery—and that doesn’t include the lawyer’s share. Steinitz suggests that if you pursue litigation funding, you should get multiple financiers to bid on your case to get the best possible percentage.