Can Texas Lenders Use Confession of Judgment Clauses?

Question from Jesse, Can Texas Lenders Use Confession of Judgment Clauses?

Answer from AI:

In the context of commercial lending, a confession of judgment is a legal provision where a borrower agrees in advance to let the lender obtain a judgment against them without a trial if they default on the loan. However, the use of confessions of judgment has been restricted or banned in many jurisdictions due to concerns about fairness and the potential for abuse.

Confession of Judgment in Texas

In Texas, the use of confessions of judgment is generally prohibited. The Texas Civil Practice and Remedies Code addresses this issue directly. According to Section 22.02 of the Texas Civil Practice and Remedies Code, a provision in any contract that purports to waive the right to notice and a hearing as a prerequisite to the enforcement of any other contractual provision is void. This includes any agreement to confess judgment.

• Section 22.02 – Prohibits certain waivers of rights, including the right to notice and a hearing, which are essential components of due process.

Personal Guarantees and Confessions of Judgment

When it comes to personal guarantees on commercial loans, the same rules apply. A personal guarantee is a promise made by an individual to repay a loan if the primary borrower defaults. Even in this context, a confession of judgment clause would not be enforceable in Texas due to the aforementioned legal restrictions.

Why Legal Advice is Important

While the general rule in Texas is clear, there may be nuances and exceptions based on specific circumstances or changes in the law. Therefore, it is crucial for individuals and businesses to consult with a legal professional for personalized advice. An attorney can provide guidance on:

• The current state of the law regarding confessions of judgment in Texas.
• Alternative legal mechanisms that may be used to secure a loan.
• The rights and obligations of both lenders and borrowers in a commercial loan agreement.

Conclusion

In summary, lenders in Texas are generally not permitted to include a confession of judgment in a personal guarantee or any other loan agreement. This is intended to protect borrowers from waiving their right to due process. For the most current and personalized legal advice, parties involved in commercial lending should consult with an attorney who is knowledgeable about Texas law and commercial finance.

For more information on the Texas Civil Practice and Remedies Code, you can visit the Texas Constitution and Statutes website.