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Confession of Judgment
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Confession of Judgment
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Confession of judgment is a remedy used by many lenders in Maryland, Virginia and Pennsylvania. In most jurisdictions, if a borrower fails to repay a loan, a lender must sue the borrower to obtain a judgment against the borrower for all amounts owed. The judgment will only be granted at the end of the law suit which could take considerable time. Lenders in Maryland, Virginia and Pennsylvania, however, can take advantage of a procedural tool called confession of judgment which, in commercial transactions, enables a lender to enter a judgment against a borrower after default on the loan but prior to a trial on the merits.
To take advantage of confession of judgment, a lender's documents must include a confessed judgment provision. The precise details of what the provision must say vary from state to state. In addition, Virginia law requires special notice language on any document that contains a confession of judgment provision. In all three states, however, the provision can give a lender the right to obtain a judgment against a defaulting borrower without a hearing and without notice to the borrower. After the judgment is entered, the borrower is given an opportunity to appear and explain why the judgment should be vacated. If the borrower does not appear, the judgment is entered for the lender. If the borrower does appear and is able to produce evidence that there is an actual controversy on the merits of the case, the preliminary judgment is vacated, opened or modified and the case is set for trial.
The ability to obtain an immediate judgment can give a lender with the right to confess judgment a much better position than a creditor who does not have the right to confess judgment against the borrower and must instead go through the process of a law suit before obtaining a judgment. It is especially useful where liquidation of assets is a risk or where it is likely that the borrower may file for or be placed involuntarily in bankruptcy.
Confession of judgment is not recognized in the District of Columbia and is not permitted in consumer transactions.
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