The Difference Between Recourse & Non-Recourse

September 2, 2014 12:57 pm Published by Leave your thoughts

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  anytime.  We are available to discuss the best commercial property mortgage options for all your needs.

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This post was written by Kevin Meehan

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