The lender's security is the real estate being financed; lender is prohibited from attempting to recover against the borrower ( personally) if the security value for the loan falls below the amount required to repay the loan.
In a leveraged lease, the lenders cannot look to the lessor for repayment. The lender's only recourse is to the lessee and, therefore, the lessee's credit rating is of prime importance.
Sometimes called a dry mortgage, the non-recourse loan does not hold the borrower personally liable for the loan obligation. Rather, the loan holds the property and the ownership entity created by the borrower―i.e., corporation, partnership, limited liability company, etc.―directly responsible. In the case of a default, if the property and entity cannot adequately satisfy the sums due, the lender cannot pursue the borrowers personally for a deficiency judgment, as long as the borrower has not committed negligence, fraud or commingling of funds. For more information, see the "Mortgage Deed and Promissory Note" article in the "Real Estate In-Depth" section.
A debt instrument wherein the lender can only legally require repayment of a loan from the collateral or funds of the business if the note is not repaid. As opposed to a Recourse Loan where the lender can obtain compensation from personal funds.
A loan which bars a lender from seeking a deficiency judgment against a borrower in the event of default. The borrower is not personally liable if the value of the collateral for the loan falls below the amount required to repay the loan.
A 'non recourse loan' means there are no circumstances under which you can be forced out of your home to repay the debt. If you end up owing more than the home is worth, the lender has no recourse to make good the shortfall from the borrower - a guarantee of ‘no negative equity' - or force you to sell up.
No personal liability to the borrower. Upon default, a lender may take the property pledged as collateral to satisfy the debt, but have no recourse to other assets of the borrower.
A loan which does not allow for a deficiency judgement against a borrower in the event of default. The borrower cannot be held personally liable. The lender's only available recourse in the event of default is the collateral or property.
A type of mortgage loan in which the lender's remedies in the event of the borrower's default are limited to foreclosing the mortgage. The borrower is not personally liable.
A loan obtained by a limited partnership in which the lender has claim only against the partnership as a whole, not against the individual limited partners. For tax purposes, if the partnership invests in real estate, the limited partner can include its portion of the non-recourse loan in its basis. See: Basis.
A mortgage loan not allowing for a deficiency judgment. The lender's only recourse in the event of default is the security (property) and the borrower is not personally liable.
Type of loan which prohibits the lender from attempting to recover against the security value for the loan falls below the amount required to repay the loan.