Pennsylvania Confession of Judgement

[Amad Osman]

Hey Guys,

I was closing on my first multi-family in PA the other day and the lender had me sign a confession of judgement tied to the loan. It was the first I ever heard of it and after closing I researched it. After researching it, I am a bit concerned and wish I knew about this requirement before choosing a lender.

My questions: 

Are these required on every commercial loan product in PA?  

Do you guys also sign as Guarantors on your commercial loans with this clause?

Seriously considering early loan payoff. I'm not a fan of debt, but I figured leveraging for multis was a responsible use of debt.  That being said, signing as guarantor and the confession of judgement thing has me reevaluating my approach.

Thanks in Advance for any feedback!

[Chris K.]

@Amad Osman

Most traditional lenders in Pennsylvania will ask you to sign a confession of judgment. Now if you are a very desirable borrower, you can negotiate it out. But most of us won't fall into that category. 

Note that confession of judgment is not "magic." Getting a confessed judgment to stick takes about the same amount of efforts as bringing a foreclosure action or suing under a guaranty. Having helped banks sue thousands of debtors, I can tell you that there is nothing inherently easier about confessing judgment versus any other lawsuit the bank can bring. 

Also, note that banks do not call defaults for fun. In many banks, loan officers get penalized for making too many loans that default. Likewise, calling a default requires the loan officers to file a lot of busy paperwork instead of selling loans. Long story short, banks generally won't call a default unless: (1) you fail to pay for a while; or (2) the bank deems you a total nightmare of a customer to work with. For most banks, the "10 additional events of default" you found in your loan documents are generally reserved for the second scenario.  

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.