Real Estate Law

Trial Court Refuses to Strike or Open Confessed Judgment

, The Legal Intelligencer

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One of the most oppressive tools available to commercial landlords and lenders alike is what is called a warrant of attorney. Most loan and lease agreements contain a provision known as a warrant of attorney that allows such lenders and landlords the ability to enter a judgment of record against their tenants and borrowers, as the case may be, by simply filing a complaint alleging a default under the applicable loan or lease agreement and then demanding a confessed judgment of an amount certain.

A confessed judgment allows lenders and landlords to have a judgment of record entered in their favor against an allegedly defaulting borrower or tenant before the borrower or tenant even knows what happened.

All is not lost, however, when a confessed judgment is entered. After the complaint is filed and the judgment is entered of record, the borrower or tenant may then file a petition with the trial court seeking to strike or open the confessed judgment.

As illustrated by a recent trial court ruling in Republic First Bank v. Marke E. 14th St. LLC, the chances of success when filing such a petition are rather small in most cases.

In Marke, the bank and the principal of the defendant corporate entity had a longstanding relationship that began in approximately 2006, the opinion said. According to the opinion, several years into their relationship, the bank approached the principal of the defendant corporate entity about the possibility of two loans that the bank had with another borrower of the bank.

The first loan dealt with the financing of a commercial building consisting of an office and industrial flex space, while the second loan involved the financing for the acquisition of and construction of an apartment complex, the opinion said.

The defendant corporate entity was formed for the sole purpose of purchasing these loans. To fund most of the acquisition of these loans, the parties entered into a loan arrangement where the defendant corporate entity was the borrower and the defendant principal of the corporate entity was the personal guarantor of the loan, the opinion said.

According to the defendants in Marke, almost immediately after the closing of the loan took place, "it became apparent that the bank had made a series of false or misleading statements or otherwise concealed certain pertinent facts" in the process. The defendants alleged the bank "made false representations and failed to disclose material facts to its principal concerning these loans to coerce him into buying the loans," which included inflating the value of the properties, providing false and incomplete due diligence that falsely depicted the status of the rents and rent collection, falsely representing the construction progress to [one of the] propert[ies], and failing to disclose existing code violations."

Despite the bank's alleged misrepresentations, the defendants were able to stay current with the debt service obligation arising from the new construction project by using the cash generated from the income-producing commercial property to fund the debt service. However, according to the defendants, this came to a halt when the bank forced the defendant corporate entity to sell the income-producing commercial property in order to satisfy the indebtedness due on that loan.

Unable to service the debt on the loan for the new construction project, the defendants attempted to work out an arrangement to purchase the property being developed and then sell that property in order to satisfy the remaining indebtedness due to the bank. According to the defendants, the bank initially agreed to lend the money for the property acquisition but eventually refused to do so.

According to the defendants, after the property acquisition fell through, they ceased making the loan payments. After that happened, the bank sent a written notice of default to the attorney representing the defendants, advising the attorney of the loan defaults and declaring the loan due.

The bank then filed a complaint for confession of judgment against the defendants with the Philadelphia Court of Common Pleas The defendants thereafter filed a petition to strike or open the confessed judgment.

The trial court denied the defendants' attempt to strike the confessed judgment, concluding there were no fatal defects or irregularities on the face of the confessed judgment.

In Pennsylvania, "a petition to strike a judgment operates as a demurrer to the record and may only be granted when an apparent defect on the face of the record exists. In considering the merits of a petition to strike, the court is limited to reviewing the record as filed by the party in whose favor the warrant is given, the complaint and the documents which contain confession of judgment clauses. A court's order that strikes the judgment annuls the original judgment and the parties are left as if no judgment had been entered."

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