Recourse And Non-Recourse Loans
The difference between recourse and non-recourse loans are that you are personally liable for recourse loans whereas with non-recourse loans, you are not personally liable. Recourse and non-recourse loans apply for commercial loan programs. With non-recourse loans, the mortgage 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 into default, the mortgage lender will foreclose on the subject property and 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 and whatever deficit or shortfall there is, the mortgage lender will go after the borrower’s personal assets since it is a recourse loan.
Recourse And Non-Recourse Loans: Recourse Loan
If you default on a recourse loan, the mortgage lender can not only foreclose on your property, but they can come after you for the short fall as well as legal fees and other costs associated with the default of your mortgage loan. With recourse loans, the mortgage lender can go after your personal assets, garnish your wages, levy your bank accounts, and place liens on your other properties and assets. Most commercial investors try to avoid recourse loans and favor non-recourse loans.
Recourse And Non-Recourse Loans: Non-Recourse Loans
If you default on a non-recourse loan, the mortgage lender can only go after the collateral and you are not liable personally. For example, if you owned an apartment building with a non-recourse loan and owed the mortgage lender $500,000 but defaulted on your non-recourse loan and the mortgage lender took a $300,000 loss, the mortgage lender cannot go after your personal home or other assets even though you are a millionnaire. The mortgage lender takes the loss and they have no other recourse other than the apartment building.
Non-recourse loans are the best way to go if you are a commercial property investor and need commercial loan. Non-recourse mortgage lenders normally have higher mortgage rates and require more money down since the subject property is the only collateral they have.