Recourse Loan
A recourse loan allows the lender to pursue the borrower's other assets and income beyond the collateral property if the loan goes into default and foreclosure doesn't cover the full debt amount. This means the borrower remains personally liable for any deficiency balance after foreclosure.
Example
“Unlike the non-recourse commercial loan on his office building, David's recourse loan for his rental property meant the bank could pursue his personal assets if he defaulted.”
Memory Tip
In a recourse loan, the lender has 'recourse' (can go back) to your other assets - think 'Of course they can come back for more!'
Why It Matters
Understanding whether your loan is recourse or non-recourse affects your financial risk, as recourse loans can result in wage garnishment, asset seizure, or additional lawsuits if foreclosure doesn't satisfy the debt.
Common Misconception
Many borrowers assume that losing their home to foreclosure eliminates all debt obligations, but recourse loans can leave them liable for remaining balances.
In Practice
If you default on a recourse loan and your $300,000 home only sells for $250,000 at foreclosure, the lender can pursue you personally for the $50,000 deficiency plus costs and interest. Most residential mortgages are recourse loans, though some states have anti-deficiency laws that limit this exposure.
Etymology
The term 'recourse' comes from the Old French 'recours' meaning 'a running back' or 'return for help,' describing how lenders can 'run back' to the borrower's other assets if the primary collateral fails.
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.