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Lender Beware

Lender Beware

Much has been written about Pennsylvania’s Act 95, the new Powers of Attorney (POA) Law.

The Estate Planning and Administration Bar has studied and commented at length regarding its revised Notice, Witness and other provisions.  However, the new POA Statute also has a somewhat inexplicable provision, directly affecting commercial lenders.

Most commercial loan notes in Pennsylvania contain a Warrant of Attorney, authorizing the holder (Lender) to confess judgment, usually upon default, against the maker (Borrower).

The prior version of the POA Statute specifically excluded, among other commercial credit documents and provisions, a warrant of attorney conferring authority to confess judgment, from its application.  (See, 20 Pa. C.S. sec. 5601 (e.1)(1)(iv), Act 2003-36).

As revised, the Act, effective January 1, 2015, limits the exclusion contained in the Act to having two witnesses of the maker’s execution, but does not extend that exclusion to the requirement of notarization.

Section (b)(3) provides the requirements for execution of a valid POA.  Subsection (b)(3)(i) provides for the acknowledgement before a notary public, and (b)(3)(ii) provides for the witnessing of two adult individuals.

Subsection (e.1), setting forth the limitation on applicability in commercial transaction, provides that Subsections (b)(3)(ii), (c) and (d) do not apply to, among other things, “(v) a warrant of attorney conferring authority to confess judgment.”  Therefore, Subsection (b)(3)(i), requiring notarization of the signature on a document containing a warrant of attorney, does apply.

If the document is not notarized, can the holder still confess judgment if a Disclosure is executed?  Or, will the judgment be stricken as it is defective on its face?

Will the lack of notarization go the way of failure to comply with the Act 105 of 2000 Notice, which initially when enacted allowed borrowers to strike judgments that did not contain the notice.  It took almost four years, but the Court and then the legislature amended the Rule and the statute, removing the lack of notice as grounds for striking the judgment.  Four years is a long time.

Contact Jeff Lalama of our Creditors’ Rights group, if he can be of any assistance:  [email protected].

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