Non Recourse Loan
A non-recourse loan is a type of financing where the lender can only recover their investment through the collateral property itself and cannot pursue the borrower's other personal assets if the loan goes into default. If the property value is insufficient to cover the debt, the lender absorbs the loss rather than seeking additional compensation from the borrower.
Example
“The investor preferred a non-recourse loan for the commercial property because it limited their personal liability to just the building itself.”
Memory Tip
Non-recourse = 'No recourse to your other stuff' - the lender can only take the property, not your car, house, or other assets.
Why It Matters
Non-recourse loans limit personal liability for borrowers, protecting their other assets and income from claims if the investment property fails to perform as expected.
Common Misconception
Borrowers often think all real estate loans are non-recourse, but most residential mortgages and many commercial loans include personal guarantees that make borrowers fully liable for the debt.
In Practice
An investor obtains a $2 million non-recourse loan for an office building that later becomes worth only $1.5 million during a market downturn. If the investor defaults, the lender can only seize the building and must absorb the $500,000 loss rather than pursuing the investor's other properties or income.
Etymology
From Latin 'recursus' meaning 'a running back,' this loan type gives lenders 'no recourse' or no ability to 'run back' to the borrower's other assets if the collateral isn't enough.
Common Misspellings
Compare the best financial products for you
More in financing
Other financing terms you should know
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.