Case



Case

SECTION A

Andy runs an unincorporated sign-writing business. He also speculates on financial markets through the Internet, notwithstanding warnings that investors' losses can be open-ended.

Andy's best customer paid him £2,500 on the last day of December January and February and the last entry in his account (in March) is the payment-in of a lottery win (£10,250). However in April one of his investment speculations went disastrously wrong and he has been bankrupted owing heavy enforceable debts to the Internet investment institution.

Amortization is the calculated method for how the principal is paid back and the interest is charged for Andy loan over a fixed period of time, assuring that the principal is completely repaid at the end of the loan term. Each installment payment is a calculated combination of principal and interest. Andy goal should be to analyze and obtain the right payment amount for Andy - the longer the amortization period, the lower the installment payment. If the loan term is shorter than the amortization period, a balloon principal payment will be due at the end of the loan term. Andy may want to take advantage of today's low interest rates by getting a fixed rate loan for as long a term as possible, with the longest amortization period available.

Lenders often impose prepayment penalties to discourage loan payoffs and refinancings, and assure a favorable interest income flow. These penalties are fines imposed by a lender on a borrower who wants to pay-off all or a significant part of a loan earlier than its due date. Such penalties are often significant in the early years of a loan, and then reduce gradually as the loan matures. Since today's interest rates are so low, lenders will often waive any prepayment penalties, if Andy ask, to encourage Andy to refinance at a later time when they anticipate the interest rates will be higher. This will allow Andy to keep Andy's borrowing options flexible for the future. A confession of judgment is a powerful legal remedy for lenders to use against borrowers who are in default under a loan. It allows the entry of a judgment of record against a borrower without the formality or protection of a regular lawsuit and judicial proceeding. The borrower does not receive advance notice and does not have the opportunity for a trial or hearing before the judgment is granted. This procedure has been ruled unconstitutional (as a denial of the right to due process) in most states, and severely limited in those states where it is still allowed, such as Pennsylvania. However, for a confession of judgment to be used by the lender, the borrower must grant this power in the loan document at the time the debt is incurred.

Its an advice to Andy that the loan business as intense as it is, many borrowers have been able to negotiate the confession of judgment remedy out of their loan documents. If Andy can do this, Andy's legal rights will be better protected in the event of ...