Full question:
A contractor agrees to provide self funding for a project that will cost the homeowner $20,000 with a $7,000 deposit. The builder will finance, out of his pocket, the remaining $13,000 over a period of 6 years. What protection can the builder have that the homeowner will not sell the house and skip town without paying the balance due? A lien in Pennsylvania must be executed upon within two years. If the homeowner is making the payments agreed upon, then the builder has no reason to execute on the lien. That doesn't appear to be the answer. If there were a confession of judgment in the construction agreement would that protect the builder? Please help. We have a service we will be selling to builders that may also need a law firm to represent them.
- Category: Debts and Credit
- Subcategory: Promissory Notes
- Date:
- State: Pennsylvania
Answer:
A promissory note can be secured or unsecured. If secured, it allows the lender to take property (collateral) if the borrower fails to make payments. In case of bankruptcy, the lender may recover the loan value by seizing the collateral instead of getting only a fraction of the borrower's assets after creditor claims. Collateral can include various types of property, such as stocks or accounts receivable. Both parties must sign the note, and a notary should witness the signatures. The contract may also include a choice of law clause, indicating which jurisdiction's laws will apply in case of a dispute. The loan document should be recorded in the property’s location.
A promissory note may have payment terms structured as installments or a lump sum. It can also include a balloon payment at the end of the loan period. Additionally, a confessed judgment agreement, or cognovit note, may be included. This agreement requires the borrower to waive defenses and allows for a judgment against them if they fail to pay and the matter goes to court.
Pennsylvania statutes have specific requirements for home improvement financing. For instance, a home improvement installment contract cannot require the buyer to sign a note that cuts off their right to claim against the contractor. The note must include a legend stating that payment is subject to the terms of the home improvement contract (73 P.S. § 500-207). Certain provisions are prohibited in these contracts, such as those that prevent the buyer from asserting claims against the contractor or that allow for arbitrary acceleration of payments (73 P.S. § 500-206). I recommend consulting a local attorney to review the specific facts and documents involved.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.