A non-recourse loan is secured by the property alone. If the borrower defaults, the lender's remedy is the collateral, and it cannot pursue the borrower's other assets for a shortfall. The protection is never absolute: every non-recourse loan carries carve-outs, standard exceptions that restore personal liability for specific bad acts.
- The carve-outs are the document. Fraud, misapplied rents, unpermitted transfers and environmental issues typically make the borrower personally liable again.
- Some carve-outs convert the entire loan to full recourse, not just the damage caused. Which list a clause sits on is the negotiation.
- It costs something: a lower loan amount, a higher rate, reserves, or a lockbox. The protection is bought, not granted.
- It protects assets, not the deal. The property can still be lost, and the equity in it with the property.
Related terms
All termsRecourse
A recourse loan is one where the lender can pursue the borrower personally, and not only the property, if the debt is not repaid.
FinanceLeverage
Leverage is using borrowed money to control a larger asset than cash alone would buy.
FinanceCapital Stack
The capital stack is the ordered list of everyone whose money is in a deal and who gets paid back first: senior debt at the bottom, then any secondary debt, then preferred equity, then common equity on top.
Terms arrive with the writing.
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