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The Advantages of Confession of Judgment Provisions in Virginia and Maryland Are there any Advantages?

Lenders often desire to place a “confession of judgment” provision in promissory notes or other credit agreements.    A confession of judgment provision states that an appointed person
(“Attorney in Fact”) may go to the court to “confess judgment” against the debtor, with the same result as if the debtor themselves appeared in court and admitted the debt.   There is no need for witnesses other than the appointed Attorney in Fact and no need for evidence other than the affidavit of the Attorney in Fact.  Lenders often feel that confession of judgment provisions will save much time and legal fees and avoid meritless defenses that delay collection.  However, lenders typically overestimate the practical advantages of confession of judgment provisions and do not recognize the disadvantages.

The most obvious business disadvantage to a confession of judgment provision is that it will offend the borrower.  This can sour business relations generally and make a debtor less likely to sign at all or more likely to object to other portions of the financial agreement.  Debtors frequently refuse to sign confession of judgment provisions.  This requires the Lender to evaluate the value of the confession of judgment provision.

The law has a strong prejudice in favor of fair and transparent legal proceedings on the merits.  Litigants are entitled to their “day in court.”  There has also historically been abuse of confession of judgment promissory notes, resulting in excessive judgments and abusive enforcement through garnishments and other attachments.  Most states, including both Maryland and Virginia, have created legislative protections against abuse that can effectively eliminate any advantage in the confession of judgment provision.

Both Maryland and Virginia allow confession of judgment provisions, but require service of notice on the debtor of the confessed judgment and allow a debtor to reopen the judgment.  The result is the same as if the lender had simply filed a normal lawsuit, instead of confessing judgment.  Court clerks are usually quite particular about the form and method of confession of judgment, in order to protect the defendants’ procedural rights.  A lender must normally employ an attorney to assist in the process to avoid delays or multiple trips to the courthouse.  If a debtor does make use of their procedural protections, the confession of judgment procedure can actually take longer and cost more than just filing a normal lawsuit.

In Virginia, a confessed judgment note must contain a statement typed in boldface print of not less than eight point type on its face:

IMPORTANT NOTICE

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.

This increases the chance that a debtor will be offended and will object to a confessed judgment provision.

To start the process to confess judgment in Virginia, the person with the power of attorney must appear in the courthouse with the contract and an affidavit with very particular requirements.   The lender will normally need the assistance of an attorney to do this, in order to avoid multiple trips to the courthouse.   If the papers are in proper form, the clerk will enter judgment that day.[1] However, the clerk must then serve on the debtor a certified copy of the judgment order.   If the debtor cannot be served within 60 days, the judgment is void.[2] If the judgment order is served, the debtor has 21 days after that to bring a motion to set aside the judgment “on any ground which would have been an adequate defense or setoff.”[3] If the judgment is set aside, the case proceeds on the normal trial docket, the same as if a normal lawsuit had been filed.

As a practical matter the debtor need only “state a defense” to set aside a judgment.  The court will not entertain a full evidentiary hearing at this stage to decide whether the stated defense has merit.  A debtor can normally at least delay enforcement of the judgment by hiring a lawyer to set a confessed judgment aside.   In this case, the lender would normally have gotten a trial date and judgment earlier by filing a simple lawsuit, instead of going through the confession of judgment procedure.  If a debtor does not object to the judgment, however, a lender might successfully obtain a judgment marginally faster and at a marginally lower cost.

In Virginia, if a lender serves a debtor with a normal lawsuit based on a promissory note, the debtor has twenty one (21) days to file an answer to the lawsuit.  If the debtor fails to file an answer, the lender can ask for a default judgment.  A lender can obtain a judgment in as little as 35 days and fairly easily within 60 days after filing, with one court appearance by an attorney at the courthouse.

In Maryland, a lender must still file a lawsuit in order to obtain a judgment by confession.   The lawsuit filed is very similar to any lawsuit on a contract or note.  If the lawsuit includes a proper affidavit and a copy of a note with a confession of judgment provision, the court will direct the clerk to enter judgment.[4] It can take a long time for a judge to act and for a clerk to enter judgment on a confessed judgment note in Maryland.

After entry of the confessed judgment in Maryland, the clerk must serve the debtor with a notice of the judgment and the original lawsuit.[5] The debtor then has thirty (30) days to bring a motion to open, modify, or vacate the judgment.  The motion must only “state the legal and factual basis for the defense to the claim.”[6] Again if the judgment is set aside, the case proceeds on the normal trial docket, the same as if a normal lawsuit had been filed.

Just like in Virginia, a debtor in Maryland can normally at least delay enforcement of the judgment by hiring a lawyer to set a confessed judgment aside and the lender would normally have gotten a trial date and judgment earlier by filing a simple lawsuit.  If a debtor does not object to the confessed judgment, however, a lender might successfully obtain a judgment marginally faster and at a marginally lower cost.

In Maryland, a confession of judgment can only be used in commercial transaction and not in any consumer transaction.[7] Legal fees on confessed judgments are also a particular problem in Maryland.  An attorney fee based upon a fixed percentage of the debt might not be allowed.[8] This is also true for a confessed judgment note.[9] There is a good chance a lender will need to conduct a court hearing to get an attorney fee award on a confessed judgment note in Maryland.  This further reduces the value of proceeding by a confessed judgment and means that a lender can normally get a higher quality judgment faster and less expensive by simply filing a normal lawsuit on the promissory note.

In both Maryland and Virginia, a confessed judgment can only be on a “liquidated amount.”  This is an additional problem in having a confession of judgment provision in a guaranty or credit agreement.   In open account sales particularly, the exact amount due will rarely be exactly certain.  This at least means that it will be much easier for a debtor to reopen a confessed judgment based on a guaranty or credit agreement.  It means that that a clerk or court may refuse to enter a confessed judgment and will require an evidentiary proceeding.

Confession of judgment provisions can sometimes be helpful in both Maryland and Virginia, by lowering legal costs somewhat and speeding up the process.  However, proceeding by confession of judgment can often actually take longer and increase legal fees in both states.  Lenders typically overestimate the practical advantages of confession of judgment provisions, and do not understand the disadvantages.  There is no “easy button” in obtaining judgment and collecting accounts.  Perhaps getting a confession of judgment provision should not be a big priority for a lender.


[1]Virginia Code Section 8.01-432.

[2]Virginia Code Section 8.01-438.

[3]Virginia Code Section 8.01-433.

[4]Maryland Rule 2-611(b).

[5]Maryland Rule 2-611(c).

[6]Maryland Rule 2-611(d).

[7]Maryland Rule 2-611(a).

[8]Monmouth Meadows Homeowners Association, Inc. v. Hamilton, 416 Md. 325, fn.14 (2010) (“Our holding that where an attorney is entitled to reasonable fees under the terms of a contract, that attorney is not permitted to define that amount by use of a percentage of a judgment").

[9]Meyer v. Gyro Transport Systems, Inc., 263Md.518, 531 (1971) (“When the provision to confess judgment provides only for a reasonable attorney’s fee, the reasonable amount of the fee must be determined by the court and counsel may not, himself, use a percentage to determine the amount of the attorney’s fee").

 

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