What exactly is a non-recourse loan? I see it metioned in commercial properties.

From Wikipedia:

A nonrecourse debt or non-recourse debt or nonrecourse 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. If the property is insufficient to cover the outstanding loan balance (for example, if real estate prices have dropped), the lender is simply out the difference. Thus, non-recourse debt is typically limited to 80% or 90% loan-to-value ratios, so that the property itself provides “overcollateralization” of the loan. A lender of non-recourse debt depends crucially on an accurate assessment of the credit of the borrower, and a sound knowledge of the underlying technical domain as well as financial modeling skills.

Thanks, would you say most commercial loans are non-recourse? Aren’t most commercial loans only 80-90% LTV also?

I think you can say that you will find more non-recourse loans in the commercial area than in residential. Yes the LTV’s are lower. I think 90% would be unusual.

Non-recourse is a common ingredient (or option one could get) in commercial financing—the sweet spot for most commercial lenders is 80 LTV, but there are many fringe players that lend up to 90 LTV/95 CLTV (and even up to 97 LTV if it is a OO transaction).


Scott Miller