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Litigation Loans to fund divorce

(221 Posts)
Highlandheath Mon 03-Dec-18 11:27:56

Any views, experiences, recommendations please, or do these contribute to what Mostyn describes in JvJ as "gross leaching of costs" and solicitors charging for nothing but time?

Collaborate Mon 03-Dec-18 12:28:18

I'm not sure what you're after. They are a very useful tool for clients who cannot afford to fund their case any other way. Not the cheapest loans out there, but a solicitor will never recommend one to a client unless the advice is that the outcome will be enough to repay it. You must remember that for many clients it's either take out the loan and be represented or they don't apply to court and get nothing anyway.

Highlandheath Mon 03-Dec-18 22:24:58

Which litigation loan funders would you recommend to a client and why?

Highlandheath Mon 03-Dec-18 22:26:46

Should Solicitors be able to predict the outcome accurately at the outset?

Collaborate Mon 03-Dec-18 23:10:28

We can’t recommend one loan over another. Two that I have used before are Novitas and Iceberg.

I’d have to be an IFA to recommend one. And I’m not, so I don’t.

Highlandheath Mon 03-Dec-18 23:29:22

Thanks Collaborate, that's useful information. Did the law change re solicitors recommending one preferred loan company recently or was that the case in 2014 too? I've had experience of two "Magic Circle" firms referring me to a specific loan company and not mentioning or recommending any others (or any other means of funding) in one case they claimed an "exclusive arrangement" with the loan company, in the other case they recommended only Novitas as "being the most efficient with the lowest interest rates" (18%) .... Is there a particular part of the SRA Code of Conduct or principles which states this can not be done?

MissedTheBoatAgain Tue 04-Dec-18 00:13:05

unless the advice is that the outcome will be enough to repay it

That's the gamble as even experienced Solicitors and Barristers who have all the facts in front of then will not be able to say with certainty how the Courts will rule.

For a typical average Divorce (if there is such a thing) that does not involve huge assets I can't see how Barristers and Courts will be cost effective.

If both Parties are upfront with their disclosure and take on board advice they receive as to what is a reasonable expectation and what is not then their solicitors should be able to negotiate a deal with the need for Barristers and Courts. The Consent Order would be drafted and then sent to the Courts for approval.

I know couples who have taken this approach and it has worked.

However, if one or both partners have unrealistic expectations or turn the Divorce into a contest then very likely that Courts will become involved and costs escalate. End result is that there is a lot less in the pot to share out at the end.

for many clients it's either take out the loan and be represented or they don't apply to court and get nothing anyway

Or they try and self represent and make a hash of it like my Ex in the early stages. Hearings were adjourned and the process was prolonged.

Collaborate Tue 04-Dec-18 07:50:01

Is there a particular part of the SRA Code of Conduct or principles which states this can not be done?

There is nothing to prevent the solicitor saying "we know of these companies, and have experience of getting loads from them - you are free to look at any other loans you want, and we do not recommend one provider over another". I think you will find something like that somewhere in your documents.

Highlandheath Tue 04-Dec-18 08:06:30

Who sets the expectations though? Is there a duty of care that solicitors should not over egg the client's expectations or should not push a client to go after assets they have said they don't feel happy pursuing?
As costs escalate, if a client repeatedly asks they be reined in, and repeatedly states they don't want to incur the costs of engaging further lawyers in other jurisdictions, but the solicitors repeatedly pressure them to do so, ultimately with no gain, what's the position then?

MissedTheBoatAgain Tue 04-Dec-18 08:46:01

To Highlandheath

To be fair your last post asks questions that I think Legal on MN are unable to answer without knowing all the ins and outs of your case.

If you think you received bad advice or service then maybe you should make a complaint with Law Society or Ombudsman or whoever deals with such complaints.

Yes it is true that Mostyn was horrified in one case where the Legal Fees came to 920K compared to assets of 2.9 Million, but what of the conduct of the two partners Divorcing? Did they make it a contest? Did they insist everything was valued professionally to avoid one receiving a penny more than they should? Did they provide full disclosure? The list of questions could go on and on.

I work in Dispute resolution and Arbitration and clients have a tendency only to provide details and documents that are favourable to themselves. Other side provides their version in response and further facts and evidence appear. Applicant then has to re-evaluate and make further submissions and so it goes on and on.

Not the fault of the Claims Consultants and Legal who were tasked to prepare the claims, but down to clients being economical with the truth.

Collaborate Tue 04-Dec-18 09:08:11

On some loans the solicitors have to underwrite the loan themselves. It is not in anyone's interest for the client to be egged on to take out a loan they cannot afford top repay. Each loan provider will want to know the best and worst case scenarios to ensure that the client will bereft with enough to pay. the client should also be aware of this.

Before I devote any more time to this thread, could you explain why you are asking these questions? Have you been persuaded to take out a loan you now don't want?

MissedTheBoatAgain Tue 04-Dec-18 09:15:07

If you can be bothered to read it there is a thread on the Divorce/Separation board titled:

Litigation Loans for Divorce - Has anyone used one of these and what are your experiences of them?

Might explain the OP's motives?

Highlandheath Tue 04-Dec-18 10:14:38

Message withdrawn at poster's request.

Hiddentruth Tue 04-Dec-18 10:40:17

I have read this post and wonder if a solicitor can just answer one query whether that be Collaborate or another legal...

Collaborate says:

"On some loans the solicitors have to underwrite the loan themselves"

We know there are different ways to obtain funds to have representation in divorce proceedings, be it own funds, credit card, loans from the high St, Sears Tooth agreements with your chosen lawyer if they will agree one which defers their fees to be paid from assets when sold, there are legal services orders applied for through court where other options have to be shown ( to a not overly demanding degree ) to have been exhausted as unavailable to the client. Amongst these is the option of what are called litigation loans.

What has been written so far here the litigation loan sounds very straightforward. But it does something different to other money sources. It takes security on the assets subject to ancillary relief proceedings...the very things being carved up and in limited supply for settlements.

So what the solicitor is becoming involved in is a promise to the loan company that it will pay the loan off once it gets settlement monies from sale of property usually (but it could be a car etc instead) which the loan rules require it gets under its control. That means the other party loses control not only to the selling process but has a charge hanging over their assets on top of any others that existed already eg their mortgage.

They call this an assignment from the solicitor to the loan company so the loan company is ensured repayment of the loan...the loan being the interest on top of the amount they have received through the case which was advanced to cover the legal fees of the solicitor .

But the solicitor cannot use its client account for banking...breach of SRA rule 14.5. Hmmmm. I am now perplexed!

What I am not sure about is how this differs from a Sears Tooth because it seems to me the solicitor is making a Sears Tooth with the loan company. Is that effectively what it is?

Is seems it is a double whammy in that the assets are beholden both by a Sears Tooth effectively and charges?

The loan itself is between the client and the loan company but they all need the solicitor to operate it.

The security on the lending comes by way of charges put on assets that may be jointly owned.

So can legal here explain if my understanding is correct because it is a complex set up. Also do solicitors discuss or consider conflicts of interest much on these in so far as their professional duties to numerous parties including the concept of preserving assets for all parties.

I do have another question but that is enough for now!

Hiddentruth Tue 04-Dec-18 10:55:23

Just read the post from Highlandheath. Messages must have crossed.

I think @MissedTheBoatAgain must be utterly frustrated seeing what arbitration looks like. Arbitration is peculiar in that full disclosure is not required. Deals can be struck on an uneven playing field. However in court disclosure is required....

Can legal comment on how disclosure requirements into court may be different where a litigation loan is impacting a case?

Also does legal know how court is informed of these charges on assets where it is being asked to make orders?

It seems that litigation is a reserved activity and is the preserve of the civil court so my other question is how is litigation being allowed in the family court!!!!!? The family court is not the arena for it.

Collaborate Tue 04-Dec-18 12:05:52

Lengthy reply, so I'll pick out certain points to respond to based on my own experience.

It takes security on the assets subject to ancillary relief proceedings. Neither Iceberg or Novitas require assignment or formal security. They just need to know that there will be funds at the end of the case.

They call this an assignment from the solicitor to the loan company so the loan company is ensured repayment of the loan. If there are any loan companies who require a charge over assets the assignment is from the client to the loan company, not from the solicitor.

But the solicitor cannot use its client account for banking The account isn't used for banking. It is transactional, and the client has already authorised the solicitor (I presume) to grant an irrevocable lien in favour of the loan company.

What I am not sure about is how this differs from a Sears Tooth because it seems to me the solicitor is making a Sears Tooth with the loan company The difference is that with a sears tooth agreement the solicitor doesn't get paid until the end of a case. A solicitor must conduct his or her business in a sustainable way. That means not waiting months if not years to get paid.

The security on the lending comes by way of charges put on assets that may be jointly owned. Again, I don't know of any companies that require an actual charge. Only an equitable charge can be granted over jointly owned property. If a solicitor advises that a client will end up with saleable assets that is something a loan company will take in to account. I don't see what the issue is.

So can legal here explain if my understanding is correct because it is a complex set up. It's not a complex set up. Imagine it like this:
You agree to buy a car. They tell you the price. You ask if there are other ways to pay. You are told there are. You can either put it on a credit card, or take out your own bank loan. Alternatively they have a credit company that offers secured lending (HP). They have some forms in the office to apply for a loan, and will send the forms off for you. (Now this is where lawyers differ - car showrooms are on commission for these loans - there is nothing in it for the solicitor other than they will get paid when they render their bill) The loan is approved, the car is delivered, and you make the contracted payments. With a litigation loan the terms for repayment are different - the loan is repayable in a lump sum at the end of the case.

I've seen your further post, and I'm out of here. I'm not in to answering hypothetical questions on this board. Quite happy to help people who need help for a case, but you sound more like you are on a campaign or undertaking research.

Highlandheath Tue 04-Dec-18 13:23:19

Thankyou collaborate, your time is appreciated. Unfortunately your car analogy falls down fast in my view:

You agree to buy a car. They tell you the price.
- You agree you NEED to buy a car. You have no idea what cars are available, or when any of the cars might become available, or if there are any cars available at all. You want the least expensive car that's going to be as safe as possible for your children. They are the experts, they've helped lots of people buy cars - but car buying is secret so you can't speak to anyone who has bought a car through them about their experiences. They tell you the car could cost anywhere between £20k and £50k, but recommend you take out £100k, assuring you you will never need that but that if it looks like you have lots of money to buy the indeterminate car the car sellers will be intimidated by you.

- You ask if there are other ways to pay. You are told there are. You can either put it on a credit card, or take out your own bank loan. Alternatively they have a credit company that offers secured lending (HP).

They have some forms in the office to apply for a loan, and will send the forms off for you. (Now this is where lawyers differ - car showrooms are on commission for these loans - there is nothing in it for the solicitor other than they will get paid when they render their bill)

- You tell them you can't afford to pay much, but you do have some money in the bank but they tell you to take out a loan instead at very high interest rates. This is where the car sale analogy is appropriate - I recently went with a friend to look at a classic car he was considering buying, the car dealership were really insistent on selling a car purchase loan, infact they put more effort into selling the loan then selling the car! He walked away, and 2 months later the car was being sold by the owner, for £4k less. The dealer was profiting from the sale of the car, yes, but made far more long term profit from selling the car loan..!

The loan is approved, the car is delivered, and you make the contracted payments.

The loan is approved but the car is NOT delivered, intact the type of car, cost of car, and even the existence of the car at all are still somewhere in the ether.

With a litigation loan the terms for repayment are different - the loan is repayable in a lump sum at the end of the case.

But the case doesn't end.... The Lawyers and the Loan company set a period of 2 years after which whether the car has been delivered or not, the loan has to be paid back with interest, or the loan has to be paid back when the divorce is final - on issue of the decree absolute - whichever is later (interest accruing and actually NO annual statements, even if they are contractually obliged to provide them, or the statements go to the lawyers, but are not sent to the client) The lawyers enthusiastically send in the papers for the decree absolute and for them the case is finished - but there is a bump in the road, because the lawyers have ignored the fact that the owner of the hypothetical car doesn't want to sell the car - and is now taking you back to court to fight the judges order the car should be sold.... the period after the lawyers had taken their money and run lasts years, you keep getting dragged back to the car show room as they question everything in the Judgement. The lawyers have several cars, the loan company has several cars, the other party has a car - but you just have a debt.....

Hiddentruth Tue 04-Dec-18 15:09:29

I am a bit baffled...I think @Highlandheath raised a question open for discussion which surely is allowed on here?

Legal viewpoints and explanation of curious things is helpful, not an affront.

I am not sure what the problem is, understanding something is not a crime.

Each to their own...

MrsWobble3 Tue 04-Dec-18 16:37:14

I must start by saying I am not a lawyer and am not divorced so have no first hand experience. But I do think you are being extremely rude to the lawyers who offer a lot of free help on this site. They are acting for their clients - the lawyer is there to do what the client instructs, not what with hindsight they wish they'd instructed.

I would be astonished if any of their advice was influenced by a litigation loan - it may make continued legal action possible but it will be the client's decision. I get that this is an emotionally charged time and the client's are vulnerable - but a solicitor is not a counsellor. If they do not follow a client's instruction then the professional consequences are not insignificant.

Hiddentruth Tue 04-Dec-18 18:16:08

@MrsWobble3

Please may I ask why do you think anyone is being rude here?

If you personally are not divorced or not a lawyer or not affected by any of what has been experienced or is being experienced by some people on Mumsnet then you are a fortunate person.

There are different sides to things but a solicitors' role is a pivotal one. Nobody is saying all solicitors are bad or pointing the finger here. As I understand it some of us are simply asking questions.

To get a legal insight is all that has been asked and generally when people get defensive it is because they have something to hide. So if there is nothing to hide then go forth and share the wisdom. After all, solicitors need to be paid one way or another so why shut down communication when the words 'litigation loan' is used.

As it happens the SRA have just published a risk outlook on litigation you may like to read which addresses some of the complexity involved.

So if the SRA are publishing such things that is because it is worth talking about and addressing so while I sit with the latest mumsnet video on screen next to me called

'Coercive Control is Abuse'

can I suggest that the conversation is continued here in the knowledge we all have a duty of care to ourselves and to others.

Hiddentruth Tue 04-Dec-18 18:30:36

I would personally be interested to know from any lawyers willing to post a reply on this thread, if you have ever operated a litigation loan in ancillary relief for your clients, what have you done when assets are jointly owned?

I am perplexed when @Collaborate says none they know asserts charges on assets. It is a construct of the loan process that security for the loan is secured on them. Novitas certainly do. Ratesetter also.

There are different types of loans certainly because these firms do bespoke loans so these could have specific terms in them but it is commonly understood they can take

Equitable charges or legal charges and each has a different effect. An equitable charge is not a mortgage. If they take a legal charge that is a mortgage, a second mortgage for example it will attract different terms to the loan as defined in Novitas leaflets andis limited to a year in length. That will involve any first mortgage holders being informed. A legal charge has to be registered at the land registry against the deeds.

An equitable charge can remain invisible.

Lawyers...am I right?

Highlandheath Tue 04-Dec-18 18:38:04

Mrs Wobble I am very appreciative of Collaborate's input. It's very kind and very useful to provide a legal view, and in this context, very useful too - and I have made that clear. Re your statement that the lawyer is there to do what the client instructs - not true. The lawyer is there to give expert legal advice for a fee, always acting in the clients' best interests. The SRA principles are clear, sometimes following the client's instructions would be detrimental to the client, and the lawyer should at that point act with integrity and tell the client the risks, and, if necessary, refuse to act. So my lawyers lack of expertise in one area absolutely crucial to my case, should have been made clear to me before I signed on the dotted line... if I had then been foolish enough to instruct that lawyer - that's my problem.... if the lawyer doesn't tell me they re not competent to act in that area, unfortunately that's my problem too - unless I want to exhaust myself with lengthy complaints, or engage - you've got it - another lawyer! You were on the other thread so probably read pink fogs post, 2 weeks to final hearing, and suddenly the whole £100k litigation loan was spent out and the lawyer was asking for more. Lawyers have a great deal to benefit from listening to these questions. We are the experts in terms of how these loans impact on the client, long after the lawyer has left court with hundreds of thousands in their account... And no one who has been on the receiving end of one of these loans seems to be particularly impressed either by the conduct of the loan company or the conduct of the lawyer once the loan is signed. One final thing, which is distressing - the number of times I have heard lawyers saying "a lawyer would never...." and heard their clients say "my lawyer just did" now are all clients wrong, and all lawyers right? As clients we want a good, speedy, honest, expert job, and we pay a great deal of money for that - in many cases hundreds of thousands of pounds. If the result is an unholy mess that the client is untangling for years after then I think we are entitled to complain - and the legal profession should maybe not be so defensive, but listen to what we are saying even if it means they decide that on balance, for ethical reasons, the litigation loan gravy train is not appropriate in family law...

Collaborate Tue 04-Dec-18 18:43:23

@Hiddentruth I’d be interested to hear how many Novitas loans you’ve applied for, and how many people from Novitas you’ve spoken to?

The thing is, last time I spoke to Novitas about this (on two applications made recently, one of which resulted in the offer of a loan not taken up by the client as they had settled their case) I was firmly told that they no longer take security for their loans other than a lien over the money that comes in to the hands of the solicitor.

Same with Iceberg.

The thing is, as a divorce lawyer I would prefer my client’s litigation loan to be secured. It is then less likely to be ignored by the court.

I would be really interested to find out what yours and Highlandheath’s interest is in this subject. I have nothing to hide on this subject. I’d just rather spend my spare time helping someone who has a problem rather than satisfying someone’s curiosity, and the level of detail gone in to on this thread is one that makes me think of all the other things I could be doing with my time.

Highlandheath Tue 04-Dec-18 19:29:55

Message withdrawn at poster's request.

Highlandheath Tue 04-Dec-18 19:44:54

Needed to add re collaborate making two applications recently to secure debt for divorcing clients against their homes, when property post price predictions by the BOE indicate a 30% drop in house prices post 19 March if we exit the EU without a deal. I'm not a T May fan but surely "Now is not the time"

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