Buyout (Re-Funding)

A buyout, also called re-funding, is a transaction in which a new funding company pays off the outstanding balance owed to an existing funder on a claimant's case and originates a new, typically larger, advance to the claimant under its own terms. Buyouts occur when a claimant needs additional capital beyond what the original funder is willing to advance, when a competing funder offers materially better pricing or terms, or when the original funder declines to extend further credit against the case as it approaches its funding cap. The mechanics require the new funder to obtain a full payoff quote from the existing funder, verify the current case status and value, and structure the new advance to cover both the payoff amount and any additional funds requested by the claimant, meaning the effective new balance always exceeds what the claimant would owe by staying with the original funder and simply requesting more capital, if that option existed. Because each buyout typically restarts or extends the fee accrual period on the full combined balance, sequential buyouts across the life of a single case can meaningfully compress the claimant's ultimate net recovery even when each individual transaction appeared to offer better terms than the prior funder at the time. Attorneys and claimants considering a buyout weigh the immediate benefit of additional capital against the compounding effect of resetting fee accrual on a larger principal amount.

Because a buyout resets fee accrual on the full combined balance rather than continuing the original schedule, the new funder's advertised rate can be genuinely competitive while the transaction still leaves the claimant worse off than staying with the original funder would have, which is why sophisticated referring attorneys compare total projected payoff at expected settlement rather than headline rates before recommending a buyout.

Funders soliciting buyout business specifically target cases already funded by a competitor because the existence of a prior advance is itself evidence that the case cleared another funder's underwriting, letting the acquiring funder underwrite faster and compete primarily on payoff terms rather than on case diligence.