Recourse vs Non-Recourse Loan
Recourse loans let the lender pursue a borrower's personal assets beyond the collateral if a foreclosure doesn't cover the debt; non-recourse loans limit the lender to the property itself.
Whether a loan is recourse or non-recourse answers one critical question: if the property is foreclosed and the sale doesn't cover the debt, can the lender come after you personally for the rest?
- Recourse loan: Yes. The lender can pursue the borrower's personal assets — other properties, bank accounts, wages (subject to state law) — for any deficiency remaining after the foreclosure sale.
- Non-recourse loan: No. The lender's remedy is limited to the collateral. If the property sells for less than the balance, the lender eats the loss and cannot pursue the borrower personally.
What determines which you have
It comes down to the loan documents — the promissory note and any personal guarantee — and sometimes state law. A few states limit deficiency judgments on certain purchase-money or owner-occupied loans, effectively making them non-recourse by statute. But for investment lending, the documents control.
The catch for investors: the personal guarantee
Here's what trips people up. Most investor loans are made to an LLC, and the note may even say the loan is non-recourse to the entity. But the lender almost always requires a full personal guarantee from the principal — which makes the loan effectively recourse to that individual. So:
A 'non-recourse to the LLC' loan with a full personal guarantee is, in practice, a recourse loan against you.
The label on the note matters far less than whether you signed a PG and how broad it is.
Where true non-recourse lives
Genuinely non-recourse financing — no full PG, lender limited to the property — is mostly a large-commercial and agency-multifamily product (think CMBS and Fannie/Freddie multifamily). Even those usually include bad-boy carve-outs: the loan stays non-recourse unless the borrower commits fraud, waste, or unauthorized transfers, which trigger personal liability.
Practical comparison
| Recourse | Non-recourse | |
|---|---|---|
| Lender can pursue you personally | Yes | No (collateral only) |
| Typical products | Hard money, bridge, most DSCR | Large commercial, agency multifamily |
| Usually has a personal guarantee | Yes | No (but often bad-boy carve-outs) |
| Rate | Often lower | Often slightly higher |
| Borrower risk | Higher (personal exposure) | Lower (limited to property) |
Bottom line
For most small investors, expect your hard money, bridge, and DSCR loans to be recourse via a personal guarantee. Don't assume 'non-recourse' on a term sheet means you're personally protected — read the guarantee. If limiting personal exposure is a priority, ask specifically about non-recourse options and the scope of any carve-outs, and weigh the usually higher cost.
Frequently asked questions
Are DSCR and hard money loans recourse or non-recourse?
Most are effectively recourse. Even when the loan is made to an LLC and the note says 'non-recourse to the entity,' lenders almost always require a full personal guarantee from the principal — which makes the loan recourse against that individual. True non-recourse, no-guarantee loans are mostly a large-commercial product.
Does non-recourse mean I have no personal liability?
Only if there's no full personal guarantee. A loan labeled non-recourse to your LLC but backed by your personal guarantee still exposes you personally. And even genuine non-recourse loans usually have bad-boy carve-outs that create liability for fraud, waste, or unauthorized transfers. Read the guarantee, not just the label.
Why would I pay more for a non-recourse loan?
Because it limits the lender's remedy to the property, protecting your other personal assets if the deal fails. The lender bears more risk, so non-recourse loans often price slightly higher. For investors prioritizing asset protection on a large deal, that premium can be worth the reduced personal exposure.