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Unsettled
Unsettled
- Explore: THE DATA
- Part 1: THE SELLERS
- Part 2: THE JUDGES
- Part 3: THE BUYERS
- Part 4: THE GUARDIANS
Scrutiny helps victims get better deals
In Washington, D.C., those seeking lump sums get legal aid — and better deals result.
In most states, judges have been reluctant to stand in the way of people who have been persuaded to sell their guaranteed settlement payments for cash now.
There have been a few exceptions. A former Chicago judge was so stingy with approvals that companies began filing cases in southern Illinois — a practice that the state Legislature stomped out by banning forum shopping in 2015.
But Washington, D.C., may be the only other city that has fully embraced the activist approach of Albuquerque.
Since 2013, Washington judges have routinely referred people seeking approval to sell their payments to the local Legal Aid Society. Attorney Tom Papson, who handles a large number of those cases, said about 50 people have acted on the advice.
“It is rare that someone doing one of these deals would seek us out on their own,” Papson said. “There is no easy way for them to find us.”
In about 10% of the cases, Papson said, the clients have decided to walk away from the deals after spending a couple of hours with a volunteer attorney. But most applicants want to go through with their deals. Papson said that’s where his team’s experience come into play.
“Most people don’t even know these deals are negotiable,” Papson said.
Armed with knowledge of the industry and a database of prior deals, Papson and his team usually know just how much wiggle room there is. Some customers, he said, wind up doubling their money. Usually, he said, they keep at least 50% of their money, up from about 35% before Legal Aid’s involvement.
“The clients are very appreciative,” Papson said. “Even if they don’t take our advice, they feel better because they understand the proposed transaction a lot better than they did before they talked to us.”
The Star Tribune’s analysis of more than 1,700 cases in Minnesota showed that sellers typically keep 40% of their future payments. If the transactions were treated as loans, most sellers would be paying effective interest rates of 10 to 24% per year, court records show.
“It reminds me of payday loans,” said Christi Fried, a Boston settlement consultant who previously ran the structured settlement division of a large insurance company. Fried said companies that buy settlement payments “wouldn’t be trying so hard if there wasn’t a big, fat profit in it.”
Executives with the largest companies in the industry declined to comment. The National Association of Settlement Purchasers, which represents the leading companies in the industry, issued a brief response to the newspaper’s findings.
“A fair secondary structured settlements market provides an option to payees — subject to review and approval by the courts — for meeting pressing financial needs,” the organization said.
Papson said his Legal Aid attorneys typically spend about 10 hours working with clients on their deals, though he said the agency has put in as many as 50 hours on a case. The clients didn’t pay anything for that help because they were poor and qualified for free legal assistance.
“I think there is a policing function to what we’re doing,” Papson said. “If the factoring companies know there is an interested party out here who is sophisticated about these kinds of cases, it naturally has some positive effect on their conduct. They know it may be scrutinized.”
About the series
Unsettled is a Star Tribune special report examining how companies obtain court approval to purchase payments intended to help accident victims recover from their injuries. The series was largely reported in 2019 but publication was delayed when the pandemic struck in early 2020. Additional reporting was conducted in 2020 and 2021.
SERIES CREDITS
Reporting: Jeffrey Meitrodt, Nicole Norfleet and Adam Belz
Illustration: Brock Kaplan
Photos and videos: Jeff Wheeler, Mark Vancleave and Cheryl Diaz Meyer
Development: Thomas Oide
Design: Dave Braunger, Anna Boone, Josh Penrod
Graphics: C.J. Sinner
Editing: Eric Wieffering
Copy editing: Lisa Legge, Ginny Greene and Catherine Preus
Digital engagement: Anna Ta, Ashley Miller and Tom Horgen
ABOUT THE DATA
Applications to buy settlement payments are public record, and the Star Tribune reviewed more than 1,700 individual case filings in Minnesota courts over the last 20 years. We compiled a database with information on each case, including the company that bought the payments; the financial terms if available; the district court and presiding judge; whether the case was approved, denied, dismissed or pending, and notable details about the person filing to sell their settlement.
To measure individual outcomes, we filtered the data to about 1,200 sales that judges approved. We summarized those deals by person, identifying about 800 individuals who made at least one sale, including the total amount they sold and received. We removed people for whom we didn’t have financial details from all of their sales. This left nearly 700 people for whom we calculated the total percent of money they received against what they would have received had they not sold any payments.