Here at Secondary Insurance Market Blog, we have examined legal issues involving secondary markets for insurance products from the point of view of insurers and other non-lending parties whose interests may be adversely affected by such transactions.
The types of such transactions include life settlements, litigation funding, pension factoring, and secondary markets for annuities, lottery payments, and for structured settlement payment rights.
Occasionally, we delve into analogous transactions – such as those for entertainment tickets, or the payday loan business – as a way of shining light on certain legal issues.
Today, there’s another category to add to the discussion: probate lending.
It’s not a new business, but for a number of reasons, probate lending seems to get very little attention.
A new law review article puts the focus directly on that business, and it’s worth a mention.
The article is entitled Borrowing In The Shadow Of Death: Another Look At Probate Lending, and is by law school professor David Horton, of the University of California, Davis, School of Law. The article appears in the William & Mary Law Review, 59 Wm. & Mary L. Rev. 2447 (May 2018), and is available in full here.
Professor Horton describes an earlier article, Probate Lending, 126 Yale L.J. 102 (2016), which he co-authored with Andrea Cann Chandrasekher, acting professor of law at the University of California, Davis, School of Law.
The SSRN (Social Science Research Network) abstract description of the 2018 article sums it up this way:
“Fringe” lending has long been controversial. Three decades ago, demand for subprime credit soared, and businesses started to offer high-interest rate cash advances, such as tax refund anticipation loans, payday loans, and pension loans. These products have sparked intense debate and are subject to a maze of rules. However, in Probate Lending, 126 YALE L.J. 102 (2016), a co-author and I examined a form of fringe lending that has gone largely unnoticed: firms that pay lump sums in return for an heir or beneficiary’s interest in a pending decedent’s estate. Capitalizing on a California law that requires companies to file these contracts in probate court, we analyzed seventy-seven loans that stemmed from deaths in 2007. In this companion Article, I report the results of a study of an additional twenty-two months of probate records. My research provides hard evidence about the multi-million dollar inheritance-buying industry, including the prevalence of loans, characteristics of borrowers, how often lenders are repaid, and annual interest rates. I then use this data to compare probate lending to other species of fringe lending and to outline how courts and lawmakers should regulate the practice.