Nonrecourse Debt
Non-recourse debt or a non-recourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral. Thus, non-recourse debt is typically limited to 50% or 60% loan-to-value ratios, so that the property itself provides "overcollateralization" of the loan.
The incentives for the parties are at an intermediate position between those of a full recourse secured loan and a totally unsecured loan. While the borrower is in first loss position, the lender also assumes significant risk, so the lender must underwrite the loan with much more care than in a full recourse loan. This typically requires that the lender have significant domain expertise and financial modeling expertise.
It is only used for residential mortgage loans in the United States, although most of Europe enforces mortgage debt forgiveness after eviction.
Read more about Nonrecourse Debt: Common Uses, Characterization, Tax Consequences of Disposition of Property Encumbered By Non-recourse Debt
Famous quotes containing the word debt:
“I have been told, that in some public discourses of mine my reverence for the intellect has made me unjustly cold to the personal relations. But now I almost shrink at the remembrance of such disparaging words. For persons are love’s world, and the coldest philosopher cannot recount the debt of the young soul wandering here in nature to the power of love, without being tempted to unsay, as treasonable to nature, aught derogatory to the social instincts.”
—Ralph Waldo Emerson (1803–1882)