Think Before You Modify: The Importance of Seeking Counsel Before Modifying A Commercial Loan Containing A Confession of Judgment Clause
Written by: Michael J. Shavel, Esq.
During these uncharted economic times, many commercial borrowers are seeking to modify loan documents to alleviate uncertainty and lessen their financial burden. While many lenders may be willing to work with borrowers to develop a modified document that protects both parties, it is imperative that when reviewing and modifying documents containing confessions of judgment clauses that you seek legal advice.
A confession of judgment clause contractually authorizes a creditor to enter an immediate judgment against a debtor in default without requiring, and certainly limiting, the debtor’s ability to respond or contest the judgment. Judgment may be obtained against the defaulting customer in days rather than months or years. Because the contractual provisions contained in the confession of judgment essentially deprive the debtor from having their day in court, courts strictly scrutinize and construe these provisions against the creditor.
When properly drafted, a valid confession of judgment clause will convey to the court that there is no doubt the signor was conscious of the fact that they were authorizing the creditor to enter judgment against them without notice or a hearing.
However, the strict requirements that must be followed do not stop after the original loan documents are drafted and executed. It is crucial to seek the advice of counsel when modifying documents containing a confession of judgment clause. If special and specific procedural requirements are not followed, the ability to enter judgment immediately could be lost and the confession of judgment clause can be voided. In order to protect your ability to enforce this powerful weapon, be sure to contact Hill Wallack. Our experienced attorneys can guide you in modifying and restructuring documents to protect your relationship with your customers and safeguard your ability to enter judgment should it be necessary.
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