Recourse is a lender's right to pursue a borrower's personal assets and income beyond the collateral if a foreclosure sale does not cover the loan balance. In a recourse loan, the borrower is personally liable for any deficiency. Recourse can be full, partial, or limited to specific bad acts under carve-out guaranties.
What Is Recourse in Commercial Real Estate?
Recourse in commercial real estate is the extent to which a lender can collect from a borrower personally after selling the pledged property. With full recourse, the lender pursues the borrower's other assets for any shortfall. With a non-recourse loan, the lender's recovery is limited to the property itself, subject to carve-outs that can restore personal liability.
Per PropertyMetrics and Janover, in a recourse loan the lender can pursue the borrower for any deficiency remaining after the collateral is sold, while a non-recourse lender's recovery is capped at the property. Most non-recourse commercial loans still carry carve-out guaranties, also called bad-boy guaranties, that convert the loan to recourse for defined acts such as fraud, misappropriation of rents, or a voluntary bankruptcy filing.
Structure | Lender's reach after collateral |
Full recourse | Borrower's other assets and income for any deficiency |
Partial recourse | Borrower liable up to a stated cap or percentage |
Non-recourse with carve-outs | Property only, unless a bad act triggers recourse |
Springing recourse | Non-recourse until a specified event converts it to full |
The quotable point: recourse is not about whether the borrower repays, it is about what the lender can reach if the property does not.
Why Recourse Matters
Recourse matters because it prices the loan and defines the sponsor's downside. Per a Federal Reserve study (December 2021), recourse loans carry interest rates an average of 52 basis points lower than comparable non-recourse loans and are associated with loan-to-value ratios about 2.8 percentage points higher at origination. A borrower who accepts personal liability often buys a cheaper, more leveraged loan.
The operator stakes cut both ways. Recourse lowers the lender's risk, so it widens access to credit for smaller sponsors and transitional assets that a non-recourse lender would decline. The cost is personal exposure. Per PropertyMetrics, a recourse lender that comes up short at foreclosure can pursue the borrower's other assets, cash flows, and in some cases wages, so a single bad deal can reach beyond the property into the sponsor's balance sheet.
Example
A sponsor borrows $8,000,000 in full recourse debt against a property that later sells at foreclosure for $6,500,000 net of costs. The deficiency is the loan balance minus the net sale proceeds.
Item | Amount |
Outstanding loan balance | $8,000,000 |
Net foreclosure sale proceeds | $6,500,000 |
Deficiency | $1,500,000 |
Lender recovery under full recourse | Up to $1,500,000 from borrower assets |
Lender recovery if non-recourse | $0 beyond the property |
The deficiency is $8,000,000 minus $6,500,000, or $1,500,000. Under full recourse, the lender can pursue the borrower personally for that $1,500,000. Had the loan been non-recourse with no carve-out breach, the lender would absorb the $1,500,000 loss and could not reach the borrower's other assets. The rate saving that came with recourse is the price the sponsor paid for that exposure.
Variations and Edge Cases
Recourse is rarely all or nothing; the structure sets exactly what the lender can reach. The table below covers the variants a borrower should confirm before signing.
Variant | Treatment |
Full recourse | Personal liability for the entire deficiency |
Partial or limited recourse | Liability capped at a dollar amount or loan percentage |
Burn-off recourse | Recourse reduces or ends once the property hits a performance test |
Springing recourse | Non-recourse until a triggering event makes the loan full recourse |
Carve-out only | Non-recourse except for defined bad acts under a guaranty |
Recourse vs Non-Recourse Loan
Recourse is often confused with the loan being fully secured, but the real contrast is with a non-recourse loan. A recourse loan lets the lender pursue the borrower's personal assets for any deficiency after the collateral is sold. A non-recourse loan limits the lender to the property, so the borrower is not personally liable absent a carve-out breach.
The practical difference is downside and price. A recourse loan prices cheaper, per the Federal Reserve study about 52 basis points lower, and allows higher leverage, but it puts the sponsor's balance sheet at risk. A non-recourse loan protects the borrower's other assets at a higher cost, which is why it dominates large, stabilized, securitized deals like CMBS.
Frequently Asked Questions
What is recourse in commercial real estate?Recourse is a lender's right to pursue a borrower's personal assets and income beyond the collateral if a foreclosure sale does not cover the loan balance. In a recourse loan, the borrower is personally liable for any deficiency remaining after the property is sold.
What is the difference between full and partial recourse?Full recourse makes the borrower personally liable for the entire deficiency after collateral. Partial or limited recourse caps that liability at a stated dollar amount or a percentage of the loan, so the lender can only pursue the borrower up to the agreed limit.
Do recourse loans have lower interest rates?Yes. Per a Federal Reserve study from December 2021, recourse loans carry interest rates an average of 52 basis points lower than comparable non-recourse loans and are associated with loan-to-value ratios about 2.8 percentage points higher, because personal liability reduces the lender's risk.
Related Terms
Non-Recourse Loan
Bad Boy Carve-Outs
Debt Service Coverage Ratio
Loan to Value Ratio
CMBS Loan