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The difference between a recourse vs. a non-recourse loan

Handshake after a home loan agreement.
Handshake after a home loan agreement.
Fanatic Studio Getty Images

The jargon, the vocabulary and the different narratives with financial documents can be somewhat intimidating. The first baby steps before committing to any sort of loan it is essential to get familiarized as much as possible and seek out financial professional advice on your next investment. Learning what goes into a recourse vs. a non-recourse loan depends on several aspects and the state you live carries restrictions that vary.

When you apply or take out a loan a lender, bank or mortgage company has their own set of requirements or requisites to be eligible. In addition, each individual state has a different set of laws that come into play especially when recourse and non-recourse is concerned.

For example, Madison Group Funding – a commercial broker and consultant of loans-explains the importance of getting educated on the language around the types of loans and the obligations. You do not want to sign up for something after all of the documentation, conditions and consequences are carefully examined in the event of a possibly defaulting or failing to repay the debt, as outlined in their blog post.

Another term often used for loans is the usage of a secured and unsecured loan. The fundamental difference is for a secured loan the lender can come after you and sue you to recover the remaining amount. For an unsecured loan the borrower is not required to have any form collateral, so you will not lose your house if you cannot pay. The only drawback is an unsecured carries a higher interest rate, according to

An area to consider when eventually making a valuable commitment to a long term commercial mortgage loan is learning how the law affects it. Depending on the state that you live lenders cannot sue. In other words, in the event of being unable to repay states prohibit deficient judgments.

A deficiency judgment can be brought upon on an individual or a business, which is the difference between the amounts owed on a mortgage and the price of the house is sold in foreclosure, according to So if the loan is greater than the sold price of home or asset it means that remaining amount you have to pay back.

You visit the above link for more information for the states that have an anti-deficiency law present. This translates to a state that does not allow the lenders to sue borrowers for deficiencies. In today’s housing market potential home buyers are always looking to reduce the risks given the stagnating wages and employment conditions.

In any case, reviewing information along with reading the fine print is an excellent practice to put into action. Why? There is a lot of legal terminology and technical financial terms that are injected into these documents that often discourage buyers. This results in hiring or contacting a consulting firm that is able to offer sound financial advice, but results in more out of pocket expenses.

Try to get acquainted with the housing market, the agencies and the different lenders in your state. In addition, look at the differences between recourse vs. non-recourse requisites for each financial institution. Conduct research on the web to see what existing or potential clients have to say about the lenders. It will provide you with all the necessary tools to make good purchasing decision.

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