67 Pages Posted: 26 Mar 2016 Last revised: 25 Jul 2017
Date Written: March 24, 2016
One of the most controversial trends in American civil justice is litigation lending: corporations paying plaintiffs a lump sum in return for a stake in a pending lawsuit. Although causes of action were once inalienable, many jurisdictions have abandoned this bright-line prohibition, opening the door for businesses to invest in other parties’ claims. Some courts, lawmakers, and scholars applaud litigation lenders for helping wronged individuals obtain relief, but others accuse them of exploiting low-income plaintiffs and increasing court congestion.
This Article reveals that a similar phenomenon has quietly emerged in the probate system. Recently, companies have started to make “probate loans”: advancing funds to heirs or beneficiaries to be repaid from their interest in a court-supervised estate. The Article sheds light on this shadowy practice by empirically analyzing 594 probate administrations from a major California county. It finds that probate lending is a lucrative business. Nevertheless, it also concludes that some of the strongest rationales for banning the sale of causes of action — concerns about abusive transactions and the corrosive effect of outsiders on judicial processes — apply to transfers of inheritance rights. The Article thus suggests several ways to regulate this nascent industry.
Keywords: probate loan, inheritance advance, litigation loan, payday loan, litigation finance, champerty, usury, TILA, truth-in-lending act, empirical, probate court
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