The Judgment Before the Dispute
The confession of judgment is a document signed at the inception of the MCA relationship, before any default has occurred, before any dispute has arisen, before the merchant has any reason to believe the relationship will end in litigation. It is an affidavit, executed by the business owner and typically notarized, authorizing a court to enter judgment against the merchant for the full purchased amount upon the funder’s claim of default. The merchant consents, in advance, to lose.
This instrument has no analogue in ordinary commercial practice. A landlord does not require a tenant to sign a judgment authorizing eviction before the tenant has failed to pay rent. A bank does not require a borrower to confess to default before a single payment has been missed. The confession of judgment exists because the MCA contract requires speed, certainty, and the elimination of the adversarial process. It achieves all three.
When the funder declares a default, it files the confession with the county clerk. No summons is served. No complaint is filed. No opportunity to respond is provided. The clerk enters the judgment, which becomes immediately enforceable. The funder can then serve a restraining notice on the merchant’s bank, freezing the account. The sequence, from declaration of default to frozen bank account, can occur within days.
What Changed in 2019
Before August 2019, MCA funders routinely filed confessions of judgment in New York against merchants located in every state. A business owner in Texas or Florida would discover that a New York court had entered a judgment against her, based on an affidavit she signed months earlier, in a jurisdiction she had never visited. The merchant’s only recourse was to retain a New York attorney, travel to New York (or appear through counsel), and file a motion to vacate. Most did not.
Bloomberg Businessweek’s 2018 investigation documented the scale of this practice. The reporting revealed that MCA funders had filed thousands of confessions of judgment in a handful of New York counties, targeting out-of-state businesses that could not effectively respond. Governor Cuomo signed legislation amending CPLR § 3218 to prohibit the filing of confessions of judgment against non-New York residents.
The amendment did not eliminate the confession of judgment. It limited its geographic reach. For businesses located in New York, the instrument remains available and widely used.
The confession of judgment does not enforce the contract. It replaces the process by which the contract would otherwise be enforced.
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Procedural and Substantive Challenges
A confession of judgment is not irrevocable. It can be vacated under CPLR § 5015 on several grounds: excusable default, fraud or misrepresentation, lack of jurisdiction, or the discovery of new evidence. It can also be challenged if the underlying MCA agreement is recharacterized as a criminally usurious loan, because a judgment based on a void contract is itself void.
In Funding Metrics, LLC v. D&V Hospitality, the Westchester County Supreme Court vacated a confession of judgment and voided the entire MCA agreement as criminally usurious. The court examined the funder’s actual practices, not merely the contract language, and concluded that the reconciliation provision was illusory and the transaction was a loan with an interest rate exceeding the criminal usury threshold. That decision was reversed on procedural grounds, but the substantive reasoning has influenced subsequent courts.
Procedural defects in the affidavit itself, including incorrect county designations, improper notarization, filing beyond the three-year execution window, or a stated default that never actually occurred, also provide grounds for vacatur.
The window for challenging a confession of judgment is narrow. The speed that benefits the funder works against the merchant. Every day between judgment entry and legal intervention is a day the funder is enforcing a judgment the merchant may have grounds to defeat.
The first step in responding to a confession of judgment is legal review. The first step in preventing one from being filed is understanding the clause before default occurs. Both begin with a consultation.
A merchant cash advance company has filed a confession of judgment against your business and frozen your bank account.
What are your options when an MCA company seizes your assets?
Confessions of judgment are banned in many states and can be challenged in court. An attorney can file an emergency motion to unfreeze your accounts and challenge the validity of the COJ. Many MCA agreements contain unenforceable terms.
This is general information only. Contact us for advice specific to your situation.
For more on this topic, see Your Rights When an MCA Company Files a Confession of Judgment.
For more on this topic, see How to Vacate a Confession of Judgment in New York.
