Litigation

By: Kristen Wetzel Ladd

It is not uncommon in a commercial credit transaction to have a loan to a business which is guaranteed by the principals and secured by a mortgage on the principals’ residence.  When a default occurs, the creditor must choose how to proceed to collect, usually either by confessing judgment on the note or filing an action in mortgage foreclosure.  Confessing judgment is highly efficient (see my previous blog on The Utility of Confessed Judgments) – it allows for an instant lien against all real property owned by the defendant in the county in which judgment is confessed.  It further allows for execution against all types of property – personal property (bank accounts, cars, etc.) and real property owned by the judgment-debtor, even if the creditor does not have a mortgage on the real property.

Confessing Judgment On The Note
OR
Filing An Action In Mortgage Foreclosure

However, if the creditor is going to specifically target “residential real property” as the source of payment of the judgment, the creditor may gain nothing by confessing judgment.  This is because when executing on a confessed judgment against residential real property (defined in Act 6 as “real property located within this Commonwealth containing not more than two residential units or on which not more than two residential units are to be constructed and includes a residential condominium unit”), the creditor must first file an action to conform its confessed judgment prior to obtaining a writ of execution.  The action to conform is a de novo action, meaning that the defendant may raise defenses in the conform case, even if defendant ignored the confessed judgment for years or waived those defenses by failing to include them in a previous petition to open.

If the creditor wants to specifically pursue a sheriff sale of residential real property, the creditor may be better served by initially filing an action in mortgage foreclosure.    Once suit is filed, normal timelines can be expected for service on defendant and filing of default judgment if the defendant does not file any responsive pleading.  One advantage of a mortgage foreclosure over an action on the note is that a mortgage foreclosure case has extremely narrow grounds for counterclaims by defendants.  Also, there is no right to a jury trial in a mortgage foreclosure action.  There is no such ban on jury trials on actions under the note, unless the defendant waived the right to jury trial in the note itself.  An uncontested mortgage foreclosure action with no service issues takes approximately six months to complete in Pennsylvania, from the date of filing the complaint.

If you are a creditor who needs assistance deciding whether to proceed with an action on a note vs. a mortgage foreclosure action, the law firm of Unruh Turner Burke & Frees, P.C. may be able to assist you.

Kristen Ladd

Kristen Ladd is an associate at Unruh, Turner, Burke and Frees, Kristen practices in the areas of Pennsylvania Litigation, and Pennsylvania Creditors’ Rights and Bankruptcy Law. The firm maintains law offices in Malvern, Phoenixville, and West Chester Pennsylvania which serve the Main Line, and many surrounding communities such as Devon, Exton, West Chester, Ardmore and others.

By: Kristen Wetzel Ladd

Pennsylvania is one of the few states that allows judgment to be entered by confession in connection with a commercial credit transaction. Obtaining judgment by confession is desirable for a creditor in that it is usually easier, faster, and less costly than acquiring judgment through normal litigation procedures. There are several factors which contribute to the usefulness of a confessed judgment:

• Potentially Reducing Court Time and Attorney Expenses – Because the entering of a judgment by confession is performed by the Prothonotary, the judgment is of record as soon as it is filed by the creditor’s attorney.   This single act through the warrant of attorney avoids the adversary litigation that may ensue through normal litigation procedures. The creditor can quickly attempt to collect on the debt owed.
• Shifting Burden – Once a judgment is entered by confession, there is a presumption that it is a valid judgment. The judgment-debtor has the initial burden of proving that the judgment should be open or stricken, should the debtor seek to attack the judgment. Instead of the creditor needing to prove its case, the debtor is required to do so in order to have the judgment opened. A debtor seeking to open a confessed judgment must demonstrate that there is evidence of meritorious defenses to survive a directed verdict motion and reach a jury.
• Locks Lien Priority – The date that the judgment is entered by confession locks in the creditor’s lien priority on real estate on which the creditor does not already have a mortgage. The judgment acts as a general lien against all real property owned by the debtor in the county where the judgment is entered. This is distinguishable from a mortgage, which is a specific lien against a particular piece of real property. Lien priority may become important in subsequent foreclosure or bankruptcy proceedings, as the priority affects when and if a creditor will be paid through a bankruptcy or sheriff sale of real property. The confession of judgment clause is an important tool for obtaining security for an otherwise unsecured debt.
• The Mere Filing Of A Petition To Strike And/Or Open A Confessed Judgment Does Not Act As An Automatic Stay– a debtor wishing to remove a confessed judgment must act promptly and present evidence of meritorious defenses. However, the mere filing of a petition to open or strike does not automatically affect the lien of the judgment or the right to execution. The debtor must request and obtain from the court a stay of execution in order to halt the creditor’s rights of execution.

A warrant of attorney to confess judgment is one of the most powerful clauses in a contract due to its power, as outlined above, to divest the debtor of constitutional rights and procedural protections. Therefore, courts strictly construe the language of a warrant of attorney and a creditor must be certain to follow specific procedures when obtaining a contract with a confession clause.  If you are a creditor who needs assistance with drafting a contract with the power to confess judgment, the law offices of Unruh Turner Burke & Frees may be able to assist you.

Kristen Ladd

Kristen Ladd is an associate at Unruh, Turner, Burke and Frees, Kristen practices in the areas of Pennsylvania Litigation, and Pennsylvania Creditors’ Rights and Bankruptcy Law. The firm maintains law offices in Malvern, Phoenixville, and West Chester Pennsylvania which serve the Main Line, and many surrounding communities such as Devon, Exton, West Chester, Ardmore and others.

Watch Attorney John Fiorillo as he describes a Confession of Judgment.

Owners of commercial property and commercial lenders should watch this informative video that briefly describes a confession of judgment. PA businesses and property owners benefit from unique laws. Contact John Fiorillo for more information on state specific collection procedures and other laws that may apply to your business.

By: Nancy J. Glidden 

Pennsylvania’s liberal rules concerning the amendment of pleadings aren’t so liberal in the context of complaints for confession of judgment. When filing a complaint in confession of judgment, if a mistake is made in calculating the amount of damages or the time period in which damages accrued, an attorney cannot rely upon Pa. R.C.P. 1033 to make corrections by amendment. So held the Pennsylvania Superior Court in TCPF Limited Partnership v. Skatell, 976 A. 2d 571 (Pa. Super. 2009). For a fuller discussion of the case click here.

By: Christopher L. Turner

In these challenging economic times, commercial landlords need to be mindful of the advantages of Confession of Judgment Clauses. These clauses permit a landlord to obtain a judgment either for money damages or for eviction against defaulting tenants without the need of a trial.

Additionally, priority of the judgment is established as of the date the judgment is confessed.  As a result, at the time of entry into new leases, landlords should attempt to obtain clauses permitting Confessions of Judgment for both money damages and in ejectment. Similarly, in the event a landlord is confronted with a defaulting tenant, the landlord should review the lease agreement and determine whether he or she has a Confession of Judgment Clause contained therein. If it is available, it can prove a very effective mechanism or collecting money and/or possession of property.

Whether initially drafting such clauses or seeking to enforce them, extreme care must be taken by the landlord.  Because these provisions provide prompt mechanisms for executing upon a judgment and without need for a trial, the courts routinely require strict adherence to Pennsylvania Law and its civil procedure with respect to their interpretation and enforcement.  In summary, if carefully drafted and strictly followed, these clauses provide a landlord with one of the more effective remedies available to him or her when dealing with a defaulting tenant.

For more information about Confessions of Judgment, contact our office.