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Wait ELI5: How can you presign a confession to something before you commit it? It's like signing a confession to murder before someone dies :/ How is this admi

Wait ELI5: How can you presign a confession to something before you commit it? It's like signing a confession to murder before someone dies :/ How is this admissible? I'm not American.

defen 8y ago
Good comment here: https://news.ycombinator.com/item?id=18497717 https://news.ycombinator.com/item?id=18497717 from the previous discussion about why this vehicle exists, however it sounds like it's being abused / exploited by these lending firms. They're not actually trying to make money from interest (they're happy to break even on the loan) - rather they are making money from penalties and fees assessed when the borrower "violates" the agreement (said violation often involving fraud by the lender)
dpwm 8y ago
In most states it's not considered admissable. That is why they use New York.
- sschueller 8y ago
  But they are still able seize assets in other states if the bank has a branch in NY.
lgregg 8y ago
There are a lot of old laws still on the books.
turc1656 8y ago
This is kind of the equivalent of waiving your rights. For example, you've probably heard of contracts where you sign away your right to sue someone in civil court and agree to go to arbitration instead. That's signing away your rights. Similar story here. You are agreeing in advance, to waive your right to defend yourself in court. Since these are civil cases, the judgment is always in favor of the company filing the suit because you basically agreed to let them win if they ever decided to make such a filing. In civil cases, there isn't the same burden of proof as a criminal trial. It's more of a "which side does the scale tip to with the information at hand" thing. And since the defendant agreed to not defend themselves and conceded guilt in advance, the court always sides with the accuser. Didn't read this particular article but read a different one earlier this week on this topic so not sure if it's covered here but it's a really old law/tool and has been outlawed almost everywhere. I believe it's outlawed in the entire country for personal dealings because of laws regarding due process and consumer protection. However, it is still allowed in a few states for business dealings which is why these loan places use this legal process exclusively for business loans. They don't have the same level of protection that an individual has, even though a lot of these businesses are run by 2-3 people who put up their own assets against the loan.
- jandrese 8y ago
  That seems to be putting a lot of faith in the landlord not to screw you over. It's basically Russian Roulette. But if it's a seller's market what are you going to do? Live under a bridge? Live in the sewer? Live in New Jersey?
  - turc1656 8y ago
    Totally agree. You have no control once you sign that paper if the other side will be honest or honorable in any way. And since there is no incentive for them to not screw you, and actual incentive to screw you (since they get a higher return over a shorter time) that should be the expectation. I think the real problem here is that people either don't read or don't understand what they sign. I mean you would think that a document labeled confession of judgment might alarm people, but apparently not. I recently moved and during the mortgage process for our new place I raised a number of issues regarding the accuracy of the information that was filled in. Nothing fraudulent or terrible on their part - just errors. When I raised these issues (including a math error on the loan disclosure and the omission of a loan credit I was promised) so they could correct and reissue before I signed them, the loan officer said, "You really read through these documents, huh?" and I was like "Well yeah. Who the hell wouldn't read through critical documents like this that put them on the hook for hundreds of thousands of dollars?" and she responded, "Basically everyone. They all pretty much just sign without reading. That's why we had to have that recorded phone call for documentation on our side to prove you actually understood at least the basics of what you signing." I mean I know almost no one reads EULAs, but mortgages?! That's just depressing.
    - marcosdumay 8y ago
      > I think the real problem here is that people either don't read or don't understand what they sign. If you are looking for real problems, that's way on the back of the line. The top one I can find is, how can somebody simply sign away their right to access the Judiciary system? How can those huge contracts with incomprehensible be binding for normal people? How come people have no alternative to signing them?
logfromblammo 8y ago
What the law giveth, contract may take away. Unless the law says that contracts cannot. For instance, in the common commercial code passed in nearly identical form by all 50 US states, a promissory note comes with the rights of presentment and notice of dishonor baked in. The right of presentment means that the owner of the note has to show it to you when demanding payment; this ensures that you are paying the correct person, so that if the original owner of the note sells it to someone else (as it is a negotiable instrument), you won't get demands for payment from the new owner as well as the old. You can look at the note at the time of presentment and demand, to check the endorsements, paying only the last owner recorded on the note (or the bearer, if it has been converted). The right of notice of dishonor means you must be informed in a legally-conformant way if someone to whom you are legally indebted is not satisfied with a payment you have rendered. These are commonly waived on the notes backing home mortgages. Without them, the bank can put the note in a filing cabinet somewhere, and just send you a letter when they sell it to a new owner. You never see the note again, which means the finance industry can get up to all kinds of shenanigans with MERS, obfuscated ownership, and separating the beneficial ownership of the note from enforcement of the security instrument. And waiving right to notice of dishonor means that the owner can start foreclosure as soon as you miss a payment, rather than first informing you that you missed a payment. While the rights are reasonable, hiring people to carry notes around to show them and demand payment all the time would make servicing of loans much more expensive, and therefore puts an uncompetitive floor on the interest rate for notes that do not waive those rights. Waiving the rights works, but only as long as you can trust the owners to honor the system.... In the case of the confessions of judgment, the loans cannot be made profitable without them, because the default risk and average cost of litigation is too high. One might argue that we should prefer that such loans not be made at all, rather than made only with waivers of critical consumer rights, but the state of New York has decided to allow the predatory loans to exist, and to profit from them and their lenders. The borrowers bear the burden of assessing their own risks; the state will not protect them. The remedy in a representative democracy would be to vote out of office those officials that support the practice.

Wait ELI5: How can you presign a confession to something before you commit it? It's like signing a confession to murder before someone dies :/ How is this admissible? I'm not American.

defen 8y ago

Good comment here: https://news.ycombinator.com/item?id=18497717 https://news.ycombinator.com/item?id=18497717 from the previous discussion about why this vehicle exists, however it sounds like it's being abused / exploited by these lending firms. They're not actually trying to make money from interest (they're happy to break even on the loan) - rather they are making money from penalties and fees assessed when the borrower "violates" the agreement (said violation often involving fraud by the lender)

dpwm 8y ago

In most states it's not considered admissable. That is why they use New York.

sschueller 8y ago
But they are still able seize assets in other states if the bank has a branch in NY.

lgregg 8y ago

There are a lot of old laws still on the books.

turc1656 8y ago

This is kind of the equivalent of waiving your rights. For example, you've probably heard of contracts where you sign away your right to sue someone in civil court and agree to go to arbitration instead. That's signing away your rights. Similar story here. You are agreeing in advance, to waive your right to defend yourself in court. Since these are civil cases, the judgment is always in favor of the company filing the suit because you basically agreed to let them win if they ever decided to make such a filing. In civil cases, there isn't the same burden of proof as a criminal trial. It's more of a "which side does the scale tip to with the information at hand" thing. And since the defendant agreed to not defend themselves and conceded guilt in advance, the court always sides with the accuser. Didn't read this particular article but read a different one earlier this week on this topic so not sure if it's covered here but it's a really old law/tool and has been outlawed almost everywhere. I believe it's outlawed in the entire country for personal dealings because of laws regarding due process and consumer protection. However, it is still allowed in a few states for business dealings which is why these loan places use this legal process exclusively for business loans. They don't have the same level of protection that an individual has, even though a lot of these businesses are run by 2-3 people who put up their own assets against the loan.

jandrese 8y ago
That seems to be putting a lot of faith in the landlord not to screw you over. It's basically Russian Roulette. But if it's a seller's market what are you going to do? Live under a bridge? Live in the sewer? Live in New Jersey?
- turc1656 8y ago
  Totally agree. You have no control once you sign that paper if the other side will be honest or honorable in any way. And since there is no incentive for them to not screw you, and actual incentive to screw you (since they get a higher return over a shorter time) that should be the expectation. I think the real problem here is that people either don't read or don't understand what they sign. I mean you would think that a document labeled confession of judgment might alarm people, but apparently not. I recently moved and during the mortgage process for our new place I raised a number of issues regarding the accuracy of the information that was filled in. Nothing fraudulent or terrible on their part - just errors. When I raised these issues (including a math error on the loan disclosure and the omission of a loan credit I was promised) so they could correct and reissue before I signed them, the loan officer said, "You really read through these documents, huh?" and I was like "Well yeah. Who the hell wouldn't read through critical documents like this that put them on the hook for hundreds of thousands of dollars?" and she responded, "Basically everyone. They all pretty much just sign without reading. That's why we had to have that recorded phone call for documentation on our side to prove you actually understood at least the basics of what you signing." I mean I know almost no one reads EULAs, but mortgages?! That's just depressing.
  - marcosdumay 8y ago
    > I think the real problem here is that people either don't read or don't understand what they sign. If you are looking for real problems, that's way on the back of the line. The top one I can find is, how can somebody simply sign away their right to access the Judiciary system? How can those huge contracts with incomprehensible be binding for normal people? How come people have no alternative to signing them?

logfromblammo 8y ago

What the law giveth, contract may take away. Unless the law says that contracts cannot. For instance, in the common commercial code passed in nearly identical form by all 50 US states, a promissory note comes with the rights of presentment and notice of dishonor baked in. The right of presentment means that the owner of the note has to show it to you when demanding payment; this ensures that you are paying the correct person, so that if the original owner of the note sells it to someone else (as it is a negotiable instrument), you won't get demands for payment from the new owner as well as the old. You can look at the note at the time of presentment and demand, to check the endorsements, paying only the last owner recorded on the note (or the bearer, if it has been converted). The right of notice of dishonor means you must be informed in a legally-conformant way if someone to whom you are legally indebted is not satisfied with a payment you have rendered. These are commonly waived on the notes backing home mortgages. Without them, the bank can put the note in a filing cabinet somewhere, and just send you a letter when they sell it to a new owner. You never see the note again, which means the finance industry can get up to all kinds of shenanigans with MERS, obfuscated ownership, and separating the beneficial ownership of the note from enforcement of the security instrument. And waiving right to notice of dishonor means that the owner can start foreclosure as soon as you miss a payment, rather than first informing you that you missed a payment. While the rights are reasonable, hiring people to carry notes around to show them and demand payment all the time would make servicing of loans much more expensive, and therefore puts an uncompetitive floor on the interest rate for notes that do not waive those rights. Waiving the rights works, but only as long as you can trust the owners to honor the system.... In the case of the confessions of judgment, the loans cannot be made profitable without them, because the default risk and average cost of litigation is too high. One might argue that we should prefer that such loans not be made at all, rather than made only with waivers of critical consumer rights, but the state of New York has decided to allow the predatory loans to exist, and to profit from them and their lenders. The borrowers bear the burden of assessing their own risks; the state will not protect them. The remedy in a representative democracy would be to vote out of office those officials that support the practice.