The Difference Between Recourse & Non-Recourse
By: Kevin Meehan, Managing Partner
The fact is that most loans are recourse even those that are labeled non-recourse. The real difference is what is meant by non-recourse. The term may vary somewhat between lenders, however ‘non-recourse’ loans will usually have what are called ‘carve-out provisions”. We strongly suggest that you seek legal counsel or speak with your accountant for more information. The following is just some basic information about recourse vs. non-recourse based upon our numerous closings.
A commercial mortgage loan is either recourse or non-recourse. However, sometimes a lender may also offer limited or partial recourse. While recourse generally means personal liability for the loan, non-recourse does not leave a borrower off the hook. The reason is that the carve-outs are there to protect the lender for a number of items. These may typically include: Fraud, Environmental and Misappropriation of Funds.
Some borrowers look at a non-recourse as a way to limit their contingent liabilities. Others may be concerned about not being able to pay the debt back if a big portion of the rental income went away (i.e. – think single tenant or major lease). These are very valid reasons for a non-recourse loan. However, the fact remains that a deal gone bad will impact a borrower when seeking financing in the future. This is true no matter the reason or cause for handing back a property to a lender.
While most banks will require either full or partial recourse, there are abundant loan programs for loans in excess of $1 million offering non-recourse.
Please call 212-332-3457 or email firstname.lastname@example.org anytime. We are available to discuss the best commercial property mortgage options for all your needs.
Categorised in: Loan Terms
This post was written by Kevin Meehan