What does recourse verses non-recourse refer to?
Minneapolis real estate attorney John Koneck discusses recourse and non-recourse.
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When a borrower borrows money from a lender, the borrower will sign some sort of document, usually a promissory note where the borrower says, “I’m going to pay this money back, and here’s how I’m going to pay it back.” In that situation, if the borrower does not pay the lender back, the lender can sue the borrower, go after the borrower to get the money back and get a judgment, a money judgment against the borrower to get the money back. That’s called a recourse loan. The lender has recourse against the borrower in order to collect the loan. A nonrecourse loan is the opposite of that. It’s structured in the same way. The borrower and the lender enter into a promissory note or some other document where the borrower agrees to pay the money back, but the document will say, “If the borrower doesn’t pay back the money, in legal terms, the borrower defaults, the lender has no recourse against the borrower.” The lender, instead, in order to collect its money has to do something else like foreclose on real estate if it’s a real estate loan or go after personal property if it’s liens secure – if it’s a loan that’s secured by personal property.
And in a nonrecourse situation, the borrower has no personal liability. The lender can’t get a money judgment against the borrower in that situation. So from a borrower’s perspective, nonrecourse loans are wonderful. From a lender’s perspective, nonrecourse loans aren’t so great.