When Decisions Matter.

New Pennsylvania Act Requires Loan Documents to be Notarized

By adopting Act 95 of 2014 (P.L. No. 855, No. 95, § 1 (“Act”)), the Pennsylvania General Assembly substantially revised the laws regarding powers of attorney, 20 Pa. C.S. § 5601, et seq., effective January 1, 2015. Many of the changes were designed to protect the rights and property of individuals who use a power of attorney to manage their financial affairs when they can no longer do so themselves. However, it has become apparent that the new law has had an unexpected impact on commercial loan documentation. At least until the current law is amended, Stock and Leader is recommending that all commercial loan documents which contain powers of attorney, confession of judgment clauses, or an agency delegation of any nature be notarized. This recommendation would extend to all notes, guaranty and suretyship agreements, security agreements, assignments of contracts, leases or accounts, stock powers, and any other applicable document. It is no longer good practice to notarize only those documents that are to be recorded.

It is our belief this unintended consequence arises as a result of a drafting defect in the statute. A 2003 amendment to the power of attorney law specifically excluded powers of attorney used in commercial transactions from the execution, notice and disclosure requirements of the law. In the adoption of the Act, the legislature specifically excluded the application of some requirements but not all. As currently amended, the law requires any power of attorney, including a power of attorney contained in a commercial loan document, to be “acknowledged before a notary public or other individual authorized by law to take acknowledgements.” (20 Pa. C.S. Section 5601(b)(3)(i)).

While we cannot believe this result is what the General Assembly intended for powers of attorney contained in commercial loan documents, it is the current law. Therefore, we recommend that all lenders immediately review all commercial loan document forms and revise all those that include a confession of judgment, power of attorney or other designation of agency, to include an acknowledgement before a notary public. Until the law is changed or courts rule otherwise, a power of attorney, confession clause or other agency delegation may not be enforceable against your borrower if the document is not notarized.

Please contact our Business Group if we can assist in implementing this change in your loan documentation process.

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