2 Things You Agree To When Signing A Cognovit Note

Financing is an easy way to get access to the capital needed to invest in commercial real estate without emptying your bank account to fund the sale. If you are seeking financing for a piece of commercial real estate, your creditor may ask you to sign a cognovit note. Before you sign on the dotted line, be sure you know what you are agreeing to.

Here are two legally binding promises you might make when signing a cognovit note in the future.

1. You Consent To Jurisdiction

Determining which court you can be sued in if you fail to make your payments on time when financing the purchase of commercial real estate can be difficult. In order for a court to have the authority to hear a case, you must meet one of four conditions:

  • You must live in the geographic boundaries served by the court.
  • You must do business in the geographic boundaries served by the court.
  • You  must maintain contact with individuals inside the geographical boundaries of the court, or
  • You must give consent for a court to have jurisdiction over you.

When you sign a cognovit note you fulfill the fourth condition by giving your consent for any future legal action to be taken in the court specified by your lender.

2. You Waive Your Right To Receive Notices

When you default on your financial obligation to pay for a commercial real estate loan, the execution of a cognovit note might waive your right to receive notices. In order for a foreclosure to be valid, the lender is required to follow a timeline that includes sending out notices of legal action being taken against you. Some of the notices that a lender will send when you default on a loan include:

  • Notices of Intent
  • Complaint
  • Notice of Judgment

These notices must be served upon you in a traditional foreclosure, but a cognovit note might eliminate the need for your lender to provide you with these notices. Be sure that you read the fine print before signing a cognovit note to determine if you are waiving your right to receive notices in the event you default on your loan.

Obtaining financing to invest in the purchase of commercial real estate might require you to sign a cognovit note issued by your lender. Be sure that you are aware of the fact that signing these types of promissory notes could mean you give your consent to allow a specific court jurisdiction over any legal proceedings between you and the lender, and waive your right to receive notices after a default.

Contact a commercial real estate lawyer for more information.