Recourse is a type of loan that allows the lender to recover against the personal assets of a party in the event of default by the borrower to the extent of the shortfall between the amount recovered from the underlying asset and the amount owed.
For example, if an investor has a $1,000,000 recourse loan against a property which is foreclosed upon and the lender is only able to sell the property for $750,000, then the lender may seek personal recourse against the investor to the extent of the deficiency, in this case, $250,000. With a full recourse loan, a lender can typically pursue all assets of the borrower up to the full amount of the debts. A recourse loan could alternatively be structured as partial or limited recourse, in which case, the lender may generally only pursue assets specifically listed in the loan documents, and/or collect up to a certain percentage or dollar amount. For instance, if the above example had limited recourse of $100,000, then the lender would only be entitled to collect $100,000 from the borrower personally, even though the deficiency amount is $250,000.
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Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
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