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Nonrecourse Loan

By Contributor on January 14, 2020

A nonrecourse loan is a loan from a lender in which the borrower has no personal liability in repaying it.

This essentially means that should a borrower default on a non-recourse loan, the lender would only be able to repossess the collateral in order to repay the debt.

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Lenders would not be able to go after the personal assets of the borrower to settle the debt.

Also referred to as a dry mortgage, lenders usually only approve such loans or mortgages when they are confident that the collateral used for the loan would have sufficient value to repay the debt should it be foreclosed and sold.

Because nonrecourse loan basically limit the ability of a lender to get it’s money back, lenders can sometimes insert provisions that still enable them to go after personal assets should certain event s occur or when certain circumstances arise.

It goes without saying that from the perspective of a borrower, nonrecourse mortgages are preferred that regular ones.

In some types of partnerships, these types of loan can actually provide some form of tax benefits to the partners.

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Qualified accountants should be consulted when that is the case.