ALERT: Confession of Judgment in Amendments to Loan Documents

Recently, the Pennsylvania Superior Court in Heritage Hills Associates, L.P. v. Heritage Hills Business I, LLC, reemphasized that for confession of judgment to be an enforceable remedy in connection with an amendment to a note, the confession of judgment provision must be restated or referenced in the amendment itself.  The case involved a loan transaction that was amended three years after origination to, among other things, reduce the outstanding principal amount, change the interest rate and revise the payment schedule. The original note contained a warrant of attorney to confess judgment. While the amendment to the note included a statement that “Except as expressly provided in this Amendment, all provisions of the  … note remain in full force and effect and borrower and lender … ratify and confirm each and ever provision thereof”, the Superior Court found that “merely” referencing the terms of the original note was insufficient to evidence the borrower’s “clear manifestation of consent” to the confession of judgment provision, and reversed the trial court’s order denying the borrower’s petition to open or strike the confessed judgment.  The entire case can be accessed HERE.

The “lesson learned” for lenders is to ensure that every loan modification agreement, forbearance agreement or amendment includes an express reference to the section of the underlying document (be it a note, or guaranty or other agreement), that contains the confession of judgment provision. Fully restating the confession of judgment provision in the loan modification agreement, forbearance agreement or amendment should be considered, as well as having the borrower acknowledge that provision by initialing it or having the signature line right below the restated provision. 

Dilworth’s banking attorneys are poised to assist lenders in connection with documenting loans and amendments. Please contact Rosemary Loverdi or another member of the banking group.