Read before you sign
Confession of judgment: signing away your day in court
A COJ lets a lender obtain judgment against you without a hearing, without notice, and without you getting to argue. Federally banned in consumer credit - and still legal in business lending in several states.
A confession of judgment is an agreement, signed in advance, that if the lender says you defaulted, they may enter judgment against you without suing you first. No hearing. No notice, in many cases. No opportunity to argue that you did not actually default.
The first you know about it is often a frozen bank account.
Why it is legal at all
The FTC's Credit Practices Rule (16 CFR 444.2, 1985) makes it an unfair trade practice to put a confession of judgment in a consumer credit contract. That rule does not reach business contracts — so whether a COJ is enforceable in a business-purpose loan is a question of state law.
And business-purpose is exactly what your hard money loan is. The business-purpose classification that keeps the loan fast and lightly regulated is the same classification that removes this particular protection. See entity structure.
Where they are restricted
| State | Position |
|---|---|
| California | Held unconstitutional since 1978 |
| Alaska | Complete ban |
| Indiana | A misdemeanour to obtain one |
| New Jersey | Banned in business financing contracts (2020) |
| New York | Since 30 August 2019, unenforceable against borrowers who resided outside New York when signing — see below |
| Texas | Restricted |
| Pennsylvania, Ohio and others | Still permitted in commercial contracts |
The New York change, and why it happened
New York amended CPLR 3218 effective 30 August 2019. A confession of judgment signed after that date by someone who resided outside New York is no longer enforceable there, and the document must state the New York county where the defendant resided when it was executed — it can only be filed in that county.
The reform followed reporting on merchant cash advance funders who took confessions from borrowers all over the country and filed them in a single New York county, obtaining judgments against people who had never set foot in the state and had no practical way to contest them.
What to look for in the documents
It will not always be labelled clearly. Search the note, the guaranty and any separate instrument for:
- confession of judgment, judgment by confession, or cognovit
- warrant of attorney — language appointing someone to appear for you and consent to judgment
- any clause where you waive notice, process, or the right to be heard
- a separate document presented at closing that is not the note or the mortgage; a COJ is frequently a standalone affidavit
What to do if you find one
- Ask for it to be removed. Many lenders will, because most do not actually need it — they have a first lien on real property.
- If they refuse, ask why. A lender who insists on skipping the courtroom while already secured by your building has told you something about how they intend to behave.
- Get an attorney in the property's state to review it before signing anything. This is one of the few places on this site where we would say that unambiguously.
- Treat it as a reason to compare other quotes. Get three; this clause alone justifies taking a worse rate elsewhere.
Sources
- FTC Credit Practices Rule, 16 CFR 444.2 — prohibits confessions of judgment in consumer credit contracts
- New York CPLR 3218, as amended 30 August 2019
- State positions summarised from published legal commentary; confirm current law with counsel before relying on any of it
Questions people actually ask
Who is the best hard money lender?
There is no answer to this question, and any page that gives you one is almost always compensated for it. Hard money is local, product-specific and experience-tiered: the best lender for a $180,000 flip in Ohio for a first-timer is not the best lender for a $2m ground-up in Los Angeles for a builder with twenty projects.
What you can do is compare three quotes on identical assumptions and pick on all-in cost and on how the paper is written.
We do not publish a best-lenders list and never will, because the honest answer is "it depends on your deal" and a paid answer is just an advert. This site takes no money from lenders, carries no advertising, and sells no leads - so we have nothing to gain from sending you anywhere. How this is funded.
Are hard money lenders worth it?
For the right deal, yes. The test is whether the loan is buying you something - speed, access, or leverage you genuinely need - rather than simply being the only lender who said yes. "They were the only ones who would do it" is a warning, not a recommendation.
How do I know if my hard money lender is legit?
Four checks, all free, all doable in about twenty minutes. Look the entity up on NMLS Consumer Access if your state licenses this kind of lending. Confirm the company is registered and in good standing with the Secretary of State where it claims to operate. Ask for two recent borrower references and actually call them. And insist that any money you send goes to a licensed title or escrow company, never to the lender directly.
The single strongest signal is the last one. A legitimate private lender is paid at closing out of proceeds. See how to verify a lender.
What are the signs of a loan scammer?
Guaranteed approval before anyone has looked at the property. A fee demanded before closing, especially by wire, gift card, crypto or a payment app. Pressure to decide today. No physical address, or an address that is a mail drop. A name that is a near-miss for a real lender's. Contact only through a free email domain. Documents with no entity name, no state, and no signature block. And an unwillingness to route funds through title or escrow.
The Federal Trade Commission's guidance on advance-fee loans is the plain-language reference, and it applies squarely here.
Do you have to pay an upfront fee for a loan?
Legitimate third-party costs - an appraisal, a credit check, sometimes an application or underwriting deposit - are genuinely paid up front by real lenders, and that is normal. What is not normal is a fee that must be paid to the lender, by irreversible means, as a condition of releasing funds that have supposedly already been approved.
The distinction that matters: a real cost is payable to a named third party, is documented, and is disclosed before you commit. A scam fee appears late, goes to the lender or an individual, and is urgent.
Are there many scammers offering hard money loans for real estate?
Enough that the FTC publishes standing guidance on advance-fee loan fraud, and enough that multiple legitimate private lenders run pages warning about impersonators using their names. The vulnerability is structural: this is a lightly regulated corner of lending, borrowers are often in a hurry, and the product normally does involve fast wires - which is exactly the cover a fraud needs. See advance-fee loan scams.