Recourse Loan

Full definition

Recourse vs. non-recourse is a fundamental distinction in secured lending: Recourse loan: If you default and the collateral is sold for less than the loan balance (a deficiency), the lender can sue you for the deficiency amount and pursue your other assets - wages, bank accounts, other property - to collect. Example: You take out a $15,000 auto loan (recourse). The car is repossessed and sells for $8,000 at auction. The lender can pursue a $7,000 deficiency judgment against your personal assets. Non-recourse loan: The lender's recovery is strictly limited to the collateral. If the collateral covers less than the balance, the remaining deficiency is legally uncollectible from the borrower personally. Some states have purchase-money mortgage statutes that make home mortgages non-recourse (California's 580b is the most well-known example), protecting primary residence borrowers from deficiency judgments after foreclosure. For personal loans (unsecured): Recourse/non-recourse language is less common in documentation because there is no collateral, but unsecured personal loans are inherently full-recourse - the lender can sue, obtain a judgment, and garnish wages or bank accounts. Why it matters for borrowers: In a recourse state, walking away from an underwater car loan or home loan does not end your liability - you may still owe the deficiency. Understanding recourse exposure should factor into decisions about voluntary surrender of collateral or strategic default. State laws vary significantly: Some states restrict or ban deficiency judgments on auto loans or primary mortgages. Check your state's deficiency judgment statutes before assuming you know your exposure.

• Collateral
• Default
• Wage Garnishment
• Secured loan