Recourse And Non-Recourse Loans And Major Differences

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Recourse And Non-Recourse Loans And Major Differences

This BLOG On Recourse And Non-Recourse Loans And Major Differences Was UPDATED On June 22nd, 2019

The difference between recourse and non-recourse loans are that borrowers are personally liable for recourse loans. With non-recourse loans, borrowers are not personally liable. All primary owner-occupant properties are recourse mortgages. Non-Recourse loans are for investment and commercial loans only.

  • Recourse and non-recourse loans apply for commercial loan programs
  • With non-recourse loans, the lender is mainly concerned with the property and the cash flow of the property
  • The property owner normally puts down a large down payment such as a 30% down payment or more
  • If the property owner goes defaults, the lender will foreclose on the subject property
  • Lenders will not go after the property owner since it is a non-recourse loan
  • With recourse loans, the mortgage lender will foreclose on the property in the event of the default
  • Whatever deficit or shortfall there is, the lender will go after the borrower’s personal assets since it is a recourse loan

Recourse Loans

Real Estate Investors that default on a recourse loan, the lender can not only foreclose on a property. They cannot come after the borrower for the shortfall as well as legal fees and other costs associated with the default of commercial mortgage loan.

  • With recourse loans, the lender can go after the following:
    • Can sue borrower
    • Go after personal assets
    • Garnish wages
    • Attempt to sue to freeze asset and bank accounts
    • Place liens on other properties and assets
  • Most commercial investors try to avoid recourse loans and favor non-recourse loans

Non-Recourse Loans

If you default on a non-recourse loan, the lender can only go after the collateral and you are not liable personally.

  • For example, owner of an apartment building with a non-recourse loan owing lender $500,000 but defaulted on a non-recourse loan
    • If the lender takes a $300,000 loss, the lender cannot go after the personal home or other assets even if real estate investor is a millionaire
  • The lender takes the loss and they have no other recourse other than the apartment building

Non-recourse loans are the best way to go for a commercial property investor needing commercial loans.  Non-recourse lenders normally have higher mortgage rates. Due to the higher risks, non-recourse lenders require more money down since the subject property is the only collateral they have. There is a limited liability with non-recourse commercial loans. Contact Gustan Cho Associates for more information on commercial recourse and non-recourse loans.

For more information on this blog or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. Gustan Cho Associates at Loan Cabin Inc. are direct lenders with no lender overlays on government and conventional loans. Gustan Cho Associates are also experts in Non-QM Mortgages and bank statement loans for self-employed borrowers. We offer asset depletion mortgages, bank statement loans for self-employed borrowers, fix and flip investment property loans, and Non-QM Jumbo Loans with credit scores down to 500 FICO.

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