New legislation was introduced in Ohio on July 22, 2015 which, if passed, will affect creditors and lenders alike.
Ohio is one of the few remaining states that permit a lender or creditor to enter a judgment against a debtor in default without prior notice. This is made possible through a provision in a promissory note and commonly referred to as a “cognovit judgment” or “confession of judgment.” When a debtor borrows money, signs a note with a cognovit provision and fails to pay the money owed, the debtor waives his/her right to trial and defend against the creditor or lender going to court and entering a judgment without prior notice. Cognovit judgments are invalid as to consumer debts.
The statute has remained unchanged for forty (40) years; however, if the new legislation (HB 291) passes, three major changes will occur:
- The proposed legislation clarifies that cognovit judgments can be entered only when the default is for nonpayment;
- Lenders and creditors would no longer have the ability to enter a cognovit judgment without first providing a thirty (30) day notice to the debtor. The bill (which revises Ohio Revised Code 2323.13) would require a creditor to send a written notice to the debtor at least thirty (30) days prior to the entry of judgment. Through this notice, the debtor is provided with an opportunity to request a hearing before the judge to determine the whether he/she has defaulted on the loan. Both the creditor and debtor would have the ability to call witnesses and offer evidence.
- The warning language, as part of the cognovit provision, would now also include specific language detailing the thirty (30) day notice requirement and opportunity for a hearing.
We will continue to follow this legislation and provide updates as necessary.