Finance Companies & Probate: A Lawyer’s Perspective

Unless you have been living on another Planet of late, you have been seeing the rise of finance companies in all phases of life, cars, houses, and in litigation and legal controversies. As a lawyer, I started seeing it maybe 15 to 20 years ago when I first noticed it in Commercial Litigation cases to help large law firms finance the lengthy and costly litigation process. I think of the movie “Erin Brockovich” when we saw firsthand the amount of legal time and paperwork that is needed to fund a lawsuit, not to mention the costs of expert witnesses and other expenses. Then, I started to see it popping up in the consumer world, first appearing in Personal Injury cases where there are good facts and an insurance policy at the end of the process. As such, if the facts of the case are good, finance companies are willing to loan money to a consumer battling a Personal Injury claim against an insurance company. Over the last few years I have seen it pop up in Probate cases to help finance different aspects of Probate. In fact, recently I attended a National Conference of Personal Injury Lawyers, and I ran into a young lady with a finance company that was there to make contacts with Personal Injury Lawyers. She was surprised to meet a Probate Attorney. She was not surprised to learn that such a practice of financing a person in a legal procedure was spreading into the Probate Court. It makes sense in Probate Court for all of the same reasons it made sense in other legal procedures. The purpose of this article is to try to give an independent and objective view of where a finance company could be of benefit in the Probate arena. I have practiced Probate for the last 37 years. I would guess that I have done thousands of Probates. As in any legal area, it is always growing and evolving.

One of the biggest benefits of financing a Probate that I have seen in the last few years is making the Probate Court more accessible to people who may not otherwise be able to afford an attorney to battle in a Will Contest. Going back only a couple of years ago, our office would turn down callers who were beneficiaries of an estate and who were upset with the way the Probate is being handled. As a firm, we wanted to only represent the Executor’s of the Estate. Why? Because the Executor had access to the Estate money, and they could afford to hire a lawyer to protect them in fulfilling their fiduciary duties. Beneficiaries, on the other hand, do not have access to the Estate funds and must finance their lawyers out of their own pockets. Because most beneficiaries did not have the financial means to pay our retainer, let alone our own going hourly rates, they could not afford a lawyer.

Over the last year we have seen three or four cases where we were handling a Probate representing an Executor, and we were contacted by a finance company who informed us that they advanced money to a beneficiary and assigned some of their equitable interest as a beneficiary over to the finance company. And, last year I was introduced to Probate Cash and started a business relationship with them. Since we started that relationship, my law firm is now representing some beneficiaries of an Estate who have received financial assistance from Probate Cash to pay our retainer and help finance the time and expense of battling a Contested Estate. I see this as a win win for the consumer. Now there is an option for them to explore. If their case is good, with good facts, and there are sufficient assets in the Estate, a finance company will be willing to advance funds to a beneficiary. Certainly, I am not aware of any banks or other financial institutions who are willing to make such loans or advances.

I have also seen where a finance company can be helpful to an Executor. The most common scenario is providing financial assistance to fix up a house in Probate to bring a higher price when it sells. Absent this option, the house would otherwise be sold in an “As Is” situation bringing a much lower sales price. Also, some of the Estates we represent have no liquid assets at all. One hundred percent (100%) of the Estate is in illiquid assets like a residence, or oil leases, or vacant land. In these situations, the Executor of the Estate is able to obtain financing from a finance company to help with legal and accounting fees, and other expenses of the probate process. Once again, traditional lenders are not interested in providing such liquidity and financial assistance. Without this option, as a Lawyer, we may decline to represent the Probate case and wait until the assets sell before we get paid.

In some cases, where a finance company is dealing with a beneficiary, they may structure the cash advance as an advancement of what the beneficiary will ultimately receive, and not a loan at all. In this scenario, the finance company may provide the beneficiary with some quick cash liquidity, that the beneficiary desperately needs now, and structure it in a way where nothing has to be paid back. It is merely a reduction to what the beneficiary ultimately receives.

Recently I dealt with a case, which is often the case, where a parent died, and an adult beneficiary child was in a financial hardship. In this case, the beneficiary’s house was already in foreclosure. Dad died in January, and the house was going to be foreclosed in April. Certainly, the foreclosure was going to happen before the beneficiary was going to receive his inheritance. And, in this case, there were plenty of assets in the Estate, but they weren’t going to be turned into cash until some of the assets were sold. At the time of dad’s death, the assets were already under contract to sell in July. Much too late to save the beneficiary’s house from foreclosure. This is a perfect scenario for an “advancement” from a finance company.

What are the downsides? Like any loan or cash advancement, you need to understand what the finance charges are going to be. You need to weigh this expense against the benefits you will enjoy by saving your house, or being able to hire a lawyer, or all of the other benefits mentioned above. Certainly, these companies are in business to make a profit, but also understand that they are also taking on the risk of problems that may develop in the Probate process. Also, they are solving your “time crunch”. If the transaction is large enough, you may want to seek your own independent advice from an independent lawyer to help you understand the financial expense you will incur. Like borrowing cash from anybody or any institution, you must do a “cost/benefit analysis”. From my prospective, this is a very attractive option for a lot of people that did not exist 3 or 4 years ago. So, before you decide that you cannot afford a lawyer and you won’t pursue your legal rights, talk to one of these finance companies and see if they can help.