James D. Lynch
The Difference Between "Recourse" and "Non-Recourse" Loans
When borrowing money, the loan may be either recourse or non-recourse. In both cases, if the borrower doesn't repay the loan, the lender can seize the collateral (i.e. the asset that secures the loan, which is usually the asset that was purchased with the money from the loan). What if the collateral is not enough to fully repay the lender? This is where the distinction between recourse and non-recourse becomes important.
A recourse loan holds the borrower personally liable. If the collateral is not enough to fully repay the lender, the lender can also go after other personal assets of the borrower. For example, if the borrower defaults on a recourse mortgage, the lender can seize and sell the collateral (i.e. the house), and the lender can also go after the borrower's other assets or sue to have the borrower's wages garnished until the lender collects the entire amount owed.
A non-recourse loan does not allow the lender to pursue anything other than the collateral. So if the borrower defaults on a non-recourse mortgage, the lender can only seize and sell the house. If the house does not sell for at least the amount the borrower owes, the lender is out of luck. The lender cannot take any further legal action to collect the money owed.