Confession of judgment provisions which can be found in a loan agreement, mortgage or guaranty have the effect of appointing the lender as the borrower’s or guarantor’s attorney-at-law to appear in court without service of process and to confess a judgment for the unpaid amount of a loan against the borrower, mortgagor or guarantor, as applicable.   Illinois law provides a procedure for confession of judgment without service of process and allows its use generally in commercial transactions.  735 ILCS 2-1301(c).

We have traditionally seen confession of judgment provisions in loan documents prepared for out of state transactions (e.g.Ohio) and those documented using LaserPro forms.  In both of those instances, after advising the borrower of the risks and letting the client know these are not standard in Illinois transactions, the borrower will ultimately be forced to acquiesce to the lender and agree to the language.  In the other occasional instances where the provisions were inserted into attorney preparedIllinoisloan documents, we successfully negotiated the removal of the provisions.  Lately, however, we are seeing the confession of judgment language added to attorney prepared commercial Illinois loan documents and when we try to negotiate them out, are told that lender policy will not allow the removal of the provisions.  Our snarky response that borrower policy will not allow the execution of documents with such language has been met with a “take it or leave it” reply.  So, in the end, our clients have been forced to accept these provisions if they want the loan, which leads to questions about the practical effect in the event of a default.

Although lenders may be adding these provisions toIllinoiscommercial documents more frequently, they are still cautious to implement confession of judgment becauseIllinoiscourts will closely scrutinize a confession of judgment provision and construe it strictly against the lender.  Therefore, I suspect that lender’s counsels are recommending that lenders first attempt to serve a borrower by traditional means – and only use confession of judgment if a borrower was avoiding service.

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