Last week, Bloomberg Businessweek featured an article on the use of Confessions of Judgment against small businesses. According to the article, companies like ABC Merchant Solutions are using confessions of judgment to cause havoc on small businesses who have borrowed money. The article focuses on New York, which still allows them to be used for business loans. Specifically, business loan companies using them to seize assets when customers don’t make their loan payments.
According to the article, in May 2012, a company called Yellowstone Capital LLC began using confessions of judgment. They would require borrowers to sign the confession of judgment before they received their money. And it allowed Yellowstone to start seizing assets of their borrowers. Using a small town court in Goshen, New York, these companies received 176 judgments in a one month period. These judgments affected businesses in 38 states and Puerto Rico.
What is a Confession of Judgment?
A confession of judgment is an admission by a party that they are liable for a debt. It is an agreement that the other party can enter a judgment against the person without filing a lawsuit. The confession must be signed and verified by the person under oath. It is usually held by the other party and not used or filed with a court. If the party makes all the payments they are required to make, the document is returned to the party borrowing the money.
Should I Sign a Confession of Judgment?
If you are a small business borrowing money, there will likely be a lot of paperwork provided to you. It can seem overwhelming, but you need to read and understand what you are signing. Especially if you are presented with a confession of judgment, it is a good idea to speak to an attorney. The lender may be assuring you that it is all “standard” language. But the ramifications of signing a confession of judgment are immense. You are giving the other party significant legal power. Before you know it, your accounts could be frozen and emptied. Always read before you sign a document!
Next Steps
If you or your business are preparing to borrow money and need assistance with the paperwork, call my office to set up a meeting and we can review the documents together to see if you should sign them ~ (877) AMAYERS.
