There are two types of debt borrowers may have – recourse and non-recourse.
What is a recourse loan and how is it different from a non-recourse loan? Generally, the borrowers are liable if they have a recourse debt, whereas all other types of debt are called nonrecourse.
The most significant difference between non-recourse loans and recourse loans refers to the types of assets lenders may take in case a borrower doesn’t pay the loan off.
As you may know, the majority of loans are taken with some collateral or other valuable assets. They are also known as secured loans. As it is shown from a recourse loan definition, the lender may claim these assets or collateral if the borrower fails to repay their debt in time.
Depending on your local state laws and the information mentioned in your full-recourse loan agreement, there may be different steps for claiming the borrower’s assets.
You already know what a non-recourse loan is. So, what are the main differences between it and a recourse loan? Unlike unsecured loans, the lenders will be allowed to take your collateral or other valuable assets in any case if the loan was secured. The asset that you’ve used to take out the loan is your collateral.
For instance, in the case of a non-recourse loan agreement, the lender will be allowed to seize and take your house to repay the debt upon default. But in case of a recourse loan, the lender may also take your other valuable assets if the collateral wasn’t enough to pay off the debt completely.
Non-Recourse Loan Lenders
Of course, potential borrowers are dreaming about getting IRA non-recourse loan. There are many reasons for this decision. And almost all lenders, in their turn, are willing to give out only recourse loans and they are not so risky.
If you are lucky enough to sign an agreement for a no recourse loan, you will present more risk to the lender but will save your possessions after all.
The lenders believe recourse loans present less risk. In case of default, the lender may not just sell your collateral to cover the debt, but also take other funding sources, possessions and funds. So, if the value of your home didn’t cover all the loan expenses, the lender may take other valuable items until the debt is fully repaid.
Non-Recourse Loan States Laws
As for the mortgage, in most cases it is a non-recourse loan, so make sure you check the non-recourse loan definition to understand your rights and obligations.
However, sometimes a mortgage loan can be a recourse loan so that your other valuable assets may be taken by the lender upon default. It all depends on the laws of your state, so pay attention to this if you want to know whether you are facing foreclosure.
Consider Talking to a Lawyer
If you aren’t sure whether your debt is a recourse loan or a non-recourse loan, consider discussing this with a lawyer. He or she may help you find some defenses for the foreclosure even if it turns out you have a recourse loan. There are some options to avoid foreclosure, so go ahead and make an appointment with a housing counselor who specializes in such cases.