Digging into how civil courts operate raises a ton of interesting questions. For example, how does a confession of judgment differ from a standard judgment? The answer to that question begins with discussing what a judgment actually is.
It’s Not a Verdict
When civil courts render decisions, those decisions are not verdicts of guilt or innocence. They are liability judgments. In many cases, judgments involve monetary awards. Such cases are known in the legal system as money judgments.
A good example illustrating the point is a case between a landlord and former tenant. The landlord sues the tenant in civil court for unpaid rent and damage to his property. He is seeking to cover both, along with his attorney’s fees and other costs. Any monetary award ordered by the court is legally enforceable through collection actions.
The key here is the court case. To obtain a standard judgment, the landlord must sue his former tenant in county court. Without the lawsuit there is no judgment. And without the judgment, certain types of collection efforts are off limits.
Avoiding Going to Court
A confession of judgment is the legal instrument that allows two parties to avoid court altogether. It is easily illustrated via a transaction between a commercial lender and borrower. Let us say the borrower wants a commercial loan to expand his business. He goes to a private lender who includes a confession of judgment in the loan contract.
The language more or less negates the traditional rights the borrower would have in the event of default. Should the borrower not make his loan payments, the lender can immediately obtain a judgment without having to go to court. Then the lender would be free to pursue judgment collection strategies like property liens and writs of execution.
For the record, most states prohibit confessions of judgment in consumer transactions. They do so to prevent consumers from being taken advantage of by unscrupulous creditors. However, confessions of judgment are pretty common in commercial transactions.
Commercial Judgment Collection Strategies
So, what is the advantage of obtaining judgment in a commercial dispute? According to Judgment Collectors out of Salt Lake City, UT, the big advantage is having access to certain collection tools. They include:
- Liens – Judgment creditors can place liens on all sorts of business assets. A lien could be placed on the debtor’s real estate, business equipment, vehicles, etc. Liens are bad for business, so they are very motivating. Debtors would rather find a way to pay.
- Property Seizure – Judgment creditors can also file for writs of execution that allow the seizure and sale of named assets. Again, creditors can go after real estate and other business assets. They can even go after invoices.
These collection tools are not available without a judgment. In the absence of a judgment, a creditor would only be able to employ traditional collection efforts like making phone calls and sending invoices.
Creditors Benefit the Most
No doubt that the confession of judgment primarily benefits the creditor. Its purpose is to bypass the court system, thereby allowing swift action by the creditor in the event of debtor default. Creditors can begin collection efforts right away rather than waiting months for a court hearing.
Debtors get very little from the deal. The only positive thing is that agreeing to a confession of judgment might help a debtor secure a loan quickly or after being turned down by more traditional lenders. But with the benefits going primarily to lenders, states are very wary about confessions of judgment and how they are worded in contract language.