Non recourse loans – Quest Commercial Capital. A non recourse debt is a type of loan secured by collateral, which is usually property. If the borrower defaults the issuer can seize the collateral but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount. Typically borrowers almost always favor non-recourse loans, while lenders almost always favor recourse loans The collateral is the asset that was purchased by the loan. For example, in both recourse and non-recourse mortgages the lender would be able to seize and sell the house to pay off the loan if the borrower defaults.
The difference comes if money is still owed after the collateral is seized and sold. In a recourse mortgage, the lender can go after the borrower’s other assets or sue to have his or her wages garnished. In a non-recourse mortgage, however, the lender is out of luck. If the asset does not sell for at least what the borrower owes, the lender must absorb the difference and walk away.
While potential borrowers might find it attractive to hold out for non-recourse loans, it is important to remember that they come with higher interest rates and are reserved for individuals and businesses with the best credit. Additionally, failure to pay off a non-recourse debt may leave other assets unharmed, but the borrower’s credit score will be affected in the same way as a failure to repay recourse debt.