Recourse
A loan feature that lets the lender pursue the borrower's personal assets if the collateral does not cover the debt.
Recourse describes whether a lender can go after a borrower's personal assets beyond the pledged collateral. On a recourse loan, if a foreclosure sale does not cover the balance, the lender can pursue the borrower personally for the shortfall, usually through a personal guarantee.
A non-recourse loan limits the lender to the property itself. If the deal fails, the lender takes the collateral but cannot chase the borrower's other assets. Agency, CMBS, and life company loans are commonly non-recourse, while most bank and SBA loans are full recourse.
Even non-recourse loans carry bad-boy carve-outs, exceptions for fraud, waste, unauthorized transfers, or bankruptcy that flip the loan to recourse. So non-recourse protects against market losses, not misconduct.
Formula
Recourse lets a lender pursue personal assets; non-recourse cannot
Worked Example
A borrower defaults on a $2,000,000 recourse loan, and the property sells for $1,700,000 at foreclosure. The lender can pursue the borrower personally for the $300,000 shortfall. On a non-recourse loan, that shortfall would be the lender's loss.
Why It Matters
Recourse decides how much personal risk you carry. Non-recourse protects your other assets but usually costs more or requires stronger metrics. It is one of the most important terms to negotiate.
Related Terms
Related Programs and Tools
Frequently Asked Questions
Which commercial loans are non-recourse?
Agency multifamily, CMBS, and life company loans are commonly non-recourse. Most bank loans and all SBA loans require a personal guarantee.
What are bad-boy carve-outs?
They are exceptions that make a non-recourse loan recourse if the borrower commits fraud, waste, unauthorized transfers, or files bankruptcy to block foreclosure.