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 may be secured or unsecured. When it is secured, it means that property, called collateral, may be taken by the lender if the borrower fails to pay the loan payment. If the debtor files bankruptcy, the lender may be able to recover the value of the loan by taking possession of the specified collateral instead of receiving only a portion of the borrowers property after it is divided among all creditors. Collateral may be many different types of property, such as shares of stock of a company, inventory, accounts receivable, etc.
The parties to the loan must sign it and the notary must witness the signatures. The contract may contain a choice of law clause as to where it will be litigated if a dispute arises. Choice of law refers to what jurisdiction's law is to be applied when there is a dispute in a transaction. The loan document may the n be recorded where the property is located.
A promissory note may provide for payments to be made in installments or in a lump sum. The terms may provide for a series of smaller payments at the beginning of the loan period and a larger balloon payment at the end of the loan period. The option for a confessed judgment agreement, also called a cognovit note, may also be included. A confessed judgment agreement requires the debtor not to claim defenses and agree to have a judgment entered against him if he fails to pay and the matter is taken to court.
PA statutes contain specific requirements about home improvement financing. I suggest you contact a local attorney who can review all the facts and documents involved.
The following are PA statutes:
73 P. S. § 500-207. Promissory notes
(a) No home improvement installment contract shall require or entail
the execution of any note or series of notes by the buyer which, when
separately negotiated, will cut off as to third parties any right of
action or defense which the buyer may have against the contractor.
(b) The contract may require or entail the execution of a promissory
note but only if it bears on the same side of the note as contains the
maker's signature, the following legend in at least ten point bold type:
"Payment of this note is subject to the terms of a home improvement
installment contract of even date between maker and payee". No such note
may be negotiated or otherwise transferred without simultaneous delivery
of the related contract.
73 P. S. § 500-206. Provisions expressly prohibited
No home improvement installment contract shall contain any provision by
which:
(a) The buyer agrees not to assert against a contractor a claim or defense
arising out of the sale or agrees not to assert against an assignee such a
claim or defense other than as provided in section 208.[fn1]
(b) In the absence of the buyer's default in the performance of any of
his obligations, the holder may, arbitrarily and without reasonable
cause, accelerate the maturity of any part or all of the amount owing
thereunder.
(c) The buyer waives any right of action against the contractor or
holder of the contract, or other person acting on his behalf, for any
illegal act committed in the collection of payments under the contract.
(d) The buyer relieves the contractor from liability for any legal
remedies which the buyer may have against the contractor under the
contract or any separate instrument executed in connection therewith.
(e) The contractor or holder, or any person acting on behalf of the
contractor or holder, is authorized to enter upon the premises of the
buyer unlawfully.
(f) The seller is entitled to liquidated damages in an amount which
exceeds ten per cent of the cash price stated in the contract in the
event of the buyer's failure or refusal to accept delivery of the goods
or performance of the services covered by the contract.
Any such prohibited provision shall be void but shall not otherwise
affect the validity of the contract.
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.
