New York City – An unregulated, multi-billion dollar industry in New York is causing a “crisis” in the real estate world, according to two powerful building and construction groups. The Associated Builders and Contractors (ABC-NYS) and Real Estate Board of New York (REBNY) are calling for reforms to the practice of “third-party litigation lending,” which provides quick cash advances to potential plaintiffs who may not have to repay the money if they lose their lawsuit.
“What it’s created is a general liability crisis,” said Brian Sampson, president of ABC-NYS. The groups argue that the industry, which they claim is rife with fraud and abuse, drives up insurance costs and makes it more expensive to build in the state.
The coalition, which includes the Consumers for Fair Legal Funding, is urging state lawmakers to regulate these lending practices. They want to rein in firms that provide funding to plaintiffs in frivolous lawsuits in exchange for a portion of the litigation proceeds, often charging high interest rates of up to 200%. They allege that these firms take advantage of New York’s workers compensation laws and other statutes to pressure corporations and public entities into settling cases quickly through expensive settlements.
Lawsuits funded by these lenders end up costing taxpayers millions of dollars each year in New York City alone, according to previous reports. The groups argue that unsuspecting workers, often immigrants, are manipulated into filing lawsuits that ultimately never go to court.
The coalition is supporting legislation sponsored by state Sen. Leroy Comrie (D-Queens) that would establish regulations on litigation lending, including setting a maximum rate of payout that these third-party firms can receive from a legal settlement. They are also calling for reforms to the state’s Scaffold Law, which holds developers and contractors entirely liable for injuries sustained on construction sites, even when workers are negligent.
Without reform, the groups warn that insurance costs will continue to rise, exacerbating the already mounting housing supply crisis in the state. The coalition emphasizes the need to prevent bad actors from taking advantage of unsuspecting victims and to provide relief for developers and contractors who are burdened by skyrocketing insurance costs.
The industry has faced opposition from powerful entities such as the Trial Lawyers Association, making any attempts to revise the Scaffold Law challenging in the past. However, the coalition remains committed to pushing for reforms to protect both workers and the real estate industry in New York.
The lending industry’s practices and their impact on the real estate sector have sparked concern among industry leaders, prompting calls for regulatory measures to address these issues and prevent further damage to the state’s construction and development landscape.