Definition
A recourse loan is one where the lender can pursue the borrower personally, and not only the property, if the debt is not repaid. If a foreclosure sale does not cover the balance, the lender may seek a deficiency judgment against the guarantor's other assets. Most small commercial loans are recourse, usually through a personal guarantee.
How to read it
How to read it
- It is priced. Recourse usually buys a better rate, a higher proceeds amount, or both, because the lender's risk is lower.
- The guarantee is a separate document from the note, and it is where the real exposure is written. Read it as carefully as the loan.
- A guarantee can be full, partial, or burn off when the property hits a coverage or occupancy test. Those triggers are negotiable at origination.
- It follows the guarantor, not the building. Selling the property does not release him unless the lender agrees in writing.
Terms arrive with the writing.
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